Why a global recession may not be that bad

Dubai - Governments' efforts to contain the pandemic will dictate the severity of the contraction

The global recession this year will not be as deep as expected as a result of countries' efforts to counter the economic fallout from the coronavirus pandemic, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.
The OECD said the world economy is on course to contract 4.5 per cent this year.
Provided the virus is kept from spreading out of control, the global economy will bounce back into growth next year by expanding five per cent, trimmed from a June forecast of 5.2 per cent, the Paris-based policy organisation said.
However, a stronger resurgence of the virus or more strict measures to contain it could chop two to three percentage points from the 2021 outlook, the OECD warned.
In its previous set of forecasts in June, OECD had been expecting the global economy to shrink by six per cent in 2020 and return to growth of 5.2 per cent next year.
"After the initial bounce-back in many activities following the easing of confinement measures, there are some signs from high-frequency indicators and business surveys that the pace of the global recovery has lost momentum since June, particularly in many advanced economies," the OECD said.
It pointed out, however, that "the economic outlook remains exceptionally uncertain, with the Covid-19 pandemic continuing to exert a substantial toll on economies and societies".
"Everything needs to be done to strengthen confidence," OECD chief economist Laurence Boone told a news conference. "That is really, really key to the recovery and to make it faster and larger."
Governments will especially need to keep helping people to find jobs and support investment, she said.
"So, the first message we want to send is do not repeat the mistakes of the past, do not withdraw the fiscal support too early."
Nariman Behravesh and Sara Johnson, global economists at IHS Markit, said as a resurgence in new Covid-19 cases continue to raise the risk of a deep global recession, the pandemic-related implications could run deeper still and possibly last even longer.
"The Covid-19 pandemic will hurt long-term economic growth...crises not only plunge economies into recession in the near-to-medium term, but they can also inflict long-term damage."
In the second quarter of 2020, global output more than 10 per cent lower than at the end of 2019, "an unprecedented sudden shock in modern times", the OECD said.
The extent and timing of the pandemic shock differed across the major economies, but all experienced a sharp contraction in activity as necessary containment measures were implemented.
Global trade collapsed, declining by over 15 per cent in the first half of 2020, and labour markets were severely disrupted by reductions in working hours, job losses and the enforced shutdown of businesses.
"Without the prompt and effective policy support introduced in all economies to cushion the impact of the shock on household incomes and companies, the contraction in output and employment would have been substantially larger," it said.
Looking at individual economies, China was expected to be the only one to expand in 2020, with projected growth of 1.8 percent. India, on the other hand, would see its economy shrink by 10.2 per cent.
The United States, the world's biggest economy, would fare better than the global average, with a projected contraction of 3.8 per cent this year.
Germany would perform better than the eurozone as a whole, with its economy set to shrink by 5.4 per cent, compared with a contraction of 7.9 per cent for the single currency area.
The French economy was set to shrink by 9.5 per cent, Italy's by 10.5 per cent and Britain's by 10.1 per cent, the OECD predicted.
issacjohn@khaleejtimes.com