World Economy Crash Sparks Warning on Early Lifeline Withdrawal
The coronavirus pandemic is splintering the world economy, and policy makers can’t risk a premature withdrawal of lifelines to businesses and the most vulnerable people, the OECD warned.
It made the grim assessment as it forecast a global slump of 6% this year, more than the World Bank earlier this week. That’s based on a scenario of the virus continuing to recede. A second wave, which the OECD said is an equally likely scenario, could mean a 7.6% contraction.
As authorities relax restrictions on movement and activity, some numbers suggest economies are through the worst of the slump. But the OECD said withdrawing support for workers and businesses risks prolonging the economic and social damage from the pandemic. In the U.S., some Republicans are already questioning the need for more stimulus after a surprise jump in payrolls in May.
“May be now is not the best time. I am not saying we shouldn’t do one ever, but it may be too soon to do it effectively,” Mick Mulvaney, former acting White House chief of staff, told Bloomberg Television. “A better plan now is to take a deep breath and see what happens in the next 30, 60, 90 days.”
In the OECD’s view, huge risks remain. With some industries facing long-term damage -- airlines have already announced thousands of job cuts -- it warned that an increase in bankruptcies and sustained period of unemployment is likely.
“It’s really important we don’t repeat the mistake of the financial crisis and that we do support this transition until growth and employment growth regains momentum,” Chief Economist Laurence Boone said.
Given the already clear impact of restrictions and lockdowns, the OECD’s gloomy outlook is unsurprising. But it also highlighted the social fallout, and the deepening fault lines created by the virus. More trade constraints are springing up, and lockdowns have heightened inequalities between workers, with the youngest and least qualified on the front line.
“We’ve never seen such uncertainty,” Boone said. “That’s the most difficult thing in this crisis -- things have to evolve week by week because the situation may change so dramatically.”
Governments must pay particular attention to the most vulnerable, according to the report. The young and low-paid are make up a larger share of the workforce in the sectors most exposed to job losses and health risks, while highly qualified workers have more often been able to work at home.
In the outlook, the OECD sees the U.S. shrinking more than 7% in 2020 in the “single-hit scenario” while the euro area suffers a 9% contraction. Italy, France and the U.K. will all shrink more than 11%.
It’s an unprecedented challenge for governments, who’ve already spent billions to keep businesses afloat and workers in jobs until their economies reopen. The OECD said support must now be adapted to help companies in ailing industries restructure, and workers retrain. But such transitions take time, and many more businesses may fail in the meantime, which means greater job losses.
The OECD said policy makers will have to walk a “tightrope” between continuing to provide exceptional -- and costly -- safety nets and not being trapped into upholding activity for a long period.
“Policies need to mitigate inequalities being worsened by the crisis,” OECD Secretary General Angel Gurria said. “We know many of the worst off and most vulnerable are being hit hardest by the pandemic.”
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