OECD Warns Of Deepest Global Downturn In Century, Second Virus Wave

Tyler Durden's Photo
by Tyler Durden
Wednesday, Jun 10, 2020 - 07:30 AM

The COVID-19 pandemic has triggered one of the most severe global recessions in nearly a century and will leave the world scarred for years, the Organization for Economic Cooperation and Development (OECD) warned on Wednesday.

The Paris-based policy forum has taken a rather unusual step in its latest update on the global economy by offering two forecasts for global growth: the first, assuming a second coronavirus will arrive in the back half of 2020; the second is strict social distancing measures can be enough to avoid the emergence of new virus cases and deaths.  

If a second outbreak is seen, the OECD forecasts global growth will plunge by 7.6% in 2020, and "remain well short" of its growth activity levels from 2019, suggesting no V-shaped recovery. If a second wave can be avoided, the OECD forecasts the world economy will still contract by 6% this year and again fail to recover to pre-corona levels by the end of 2021.

"Both scenarios are sobering, as the economic activity does not and cannot return to normal under these circumstances," OECD chief economist Laurence Boone wrote in the report. 

Boone added that "Most people see a V-shaped recovery, but we think it's going to stop halfway. By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms, and governments." 

"When you reopen the sectors that can function nearly normally, then you obviously get a surge in activity, but because the virus is prevalent elsewhere or is not eradicated in our countries, then some borders remain closed, some mobility will be hampered and some sectors cannot function like entertainment or mass gatherings," she continued. 

The report said the US economy is expected to contract by 7.3% this year before bouncing back with 4.1% growth in 2021. If a second virus wave is seen, the US economy would contract by 8.5% this year and would only grow 1.9% next year. 

As for Europe, a downturn of 9.1% is forecasted this year, followed by a 6.5% move higher next year. But if a second virus wave is seen, the recession could deepen to 11.5% this year, followed by growth of 3.5% next year. 

The OECD warned about high unemployed affecting millennials. "Unemployment in the median OECD economy this year is projected to be at the highest level for twenty-five years, and ease only slowly in 2021," it said.

"The scarring effects from job losses are likely to be felt particularly by younger workers and lower-skilled workers, with attendant risks of many people becoming trapped in joblessness for an extended period."

There was also concern emerging market economies shouldered the brunt of the downturn. Countries in Latin America are continuing to see an explosion of virus cases and deaths as economic activity has collapsed. 

President Trump recently said, "We've been talking about the 'V' -- this is better than a 'V'. This is a rocket ship," while referring to jobs and the economy last week. 

If the OECD is correct, along with the latest World Bank's report specifying how "subdued" recovery is ahead, this would all suggest President Trump's pumping of a V-shaped recovery is setting markets up for big disappointment as expectations are set to high. But, hey, it's an election year and Trump has to pump, pump, pump.