MNI POLICY: Global GDP To Fall 6% in Single-Hit Pandemic: OECD

By Greg Quinn

     PARIS (MNI) - Global GDP will fall at least 6% this year to usher in the

steepest income decline in more than a century, forcing central banks and

governments to prolong "ultra-accommodative monetary policies and higher public

debt" the OECD said Thursday. 

     Output may decline 7.6% in 2020 if there is a second Covid-19 wave, the

Paris-based group's report said, warning "the recovery will not gain steam

without more confidence, which will not fully recover without global

cooperation" improving health and economic outcomes.

     "Both scenarios are sobering, as economic activity does not and cannot

return to normal under these circumstances. 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," OECD chief economist Laurence Boone OECD wrote. 

     The OECD forecast is double the IMF's view for global GDP to tumble 3% this

year, though Managing Director Kristalina Georgieva said in late May that recent

data suggested an even bigger decline. 

     --EQUITY STAKES

     "The global economy is now experiencing the deepest recession since the

Great Depression in the 1930s, with GDP declines of more than 20% in many

countries during shutdowns and a surge in unemployment," the OECD report said. 

     Governments must consider taking equity stakes in companies in an era of

high debt and allow "fast restructuring" of troubled companies, the OECD said.

     "Ultra-accommodative monetary policies and higher public debt are necessary

and will be accepted as long as economic activity and inflation are depressed,

and unemployment is high," Boone wrote in the report.

     Other report highlights:

     --No major region is spared a major GDP decline even in a "single hit"

scenario, with the U.S. seen down 7.3%, China lower by 2.6%, the euro area

contracting 9.1%. 

     --"The current numerous monetary and financial policy programs offer

sufficient flexibility to deal with a return of the pandemic, associated

disruptions to the economy, and heightened financial market volatility. In this

event, many of these programs could and should be scaled up or extended,

particularly liquidity and lending support."

     --"Any further easing of prudential regulation should be done conditional

on transparent disclosures of financial exposures and restrictions on dividend

payments and bonuses."

     --"If the pandemic is over and the associated lockdowns are phased out

gradually, as assumed in the single-hit scenario, some scaling back of liquidity

support can be envisaged in advanced economies. Nevertheless, monetary policy

should remain very accommodative."

     --"In the double-hit scenario, headline (budget) balances are projected to

deteriorate dramatically in 2020, by about 9% of GDP in the median OECD economy,

i.e. around three times as much as in 2008-09. In 2020, in several countries,

the deficits are expected to be particularly high, including in the United

States, the United Kingdom, Japan and Italy."

     --"An excessively quick fiscal consolidation could stifle growth

excessively, as some OECD countries experienced after the global financial

crisis. But a lack of focus on ensuring debt sustainability once the recovery

has firmed would also be an important risk. Low debt servicing costs will reduce

financing pressures but will not prevent debt accumulation on their own."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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