MNI POLICY: Virus May Hit Global GDP, Need Joint Action: OECD

--OECD Outlook Cuts 2020 Growth Forecast To 2.4%

--Sees Relatively Less Easing Pressure on Fed

By Greg Quinn

     PARIS (MNI) - Global output may contract in the first quarter on damage

from the COVID-19 outbreak and coordinated stimulus will be required if it

worsens, the OECD said Monday.

     The Paris-based group slashed its 2020 growth forecast to 2.4% from a

November projection of 2.9%, citing the coronavirus outbreak that began in China

and has spread to nations including South Korea, Italy and Iran. The OECD's

outlook is well below the IMF's January estimate of 3.3% and would be the worst

outcome since a 2009 decline during the global financial crisis.

     "The adverse impact on confidence, financial markets, the travel sector and

disruption to supply chains contributes to the downward revisions in all G20

economies in 2020, particularly ones strongly interconnected to China, such as

Japan, Korea and Australia," the OECD report said.

     --FISCAL STIMULUS

     Coordinated fiscal stimulus is the best response to a more prolonged heath

crisis, the OECD said, while China must make "careful choices" to avoid

exacerbating problems such as high corporate debts. Australia and South Korea

could lower interest rates as a precaution, while there is less need for

monetary stimulus in the U.S. and Canada with fewer direct ties to China.

     "Globally co-ordinated and more forceful actions are required if downside

risks materialize" including fiscal, health and monetary policies, the OECD

said. "In all G20 countries, there are clear gains from collective action

relative to those from each country acting by itself."

     Here are other key points from the OECD report:

     --China's 2020 growth outlook was reduced to 4.9% from 5.7%. China's share

of GDP has doubled since the 2003 SARS outbreak to more than 16% of global

output, increasing the spillover effects. The U.S. growth forecast was reduced

0.1pp to 1.9%.

     --"There is limited need for further reductions in policy interest rates in

the U.S. unless the risks of a sharper growth slowdown rise. The euro area and

Japan may face a renewed need to implement additional unconventional measures,

with sub-par growth projected to persist and inflation well below target, but

have less scope to ease monetary policy substantially."

     -"Provided the effects of the virus outbreak fade as assumed, the impact on

confidence and incomes of well-targeted policy actions in the most exposed

economies could help global GDP growth recover to 3.25% in 2021." In a "longer

lasting and more intensive coronavirus outbreak," the report said, "global

growth could drop to 1.5% in 2020, half the rate projected prior to the virus

outbreak."

     -"Growth in the euro area is projected to remain sub-par, at around 1% per

annum on average in 2020-21, although the impact of the virus outbreak will

weaken outcomes in the first half of 2020," the report added.

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

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