The Organisation for Economic Co-operation and Development (OECD) warned today that the world is fast falling into the deepest peacetime recession in 100 years.
The Paris-based OECD said it forecasts a worldwide contraction of 6% in 2020, with many developed countries, which the organisation represents, being disproportionately affected. The OECD also warned it expects a second wave to occur later in the year, in which case its economists predict a fall of 7.6% in global GDP.
Laurence Boone, chief economist at the OECD, said: "Most people see a V-shaped recovery, but we think it's going to stop half way. 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."
Most people see a V-shaped recovery, but we think it’s going to stop half way. 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.”
The OECD's predictions are notably higher than those of other global institutions. The World Bank has said it expects global GDP to shrink by 5.2% over the course of 2020; the International Monetary Fund (IMF) predicts a more modest drop of 3%.
In its report published today, the OECD said: "The disruption resulting from the pandemic is likely to leave long-lasting scars in many economies. Living standards have been reduced significantly, unemployment is being pushed well above pre-crisis levels, raising the risk of many people becoming trapped in longer unemployment spells, and investment is collapsing."
Of all western countries, the UK is singled out has being particularly badly affected by the covid-19 pandemic, with its economy likely to fall by a painful 11.5%, the OECD wrote. This is slightly worse than equivalent falls in output in France, Italy and Spain. The United States is set to see its GDP shrink by 7.3% by the end of the year.
Cormac Nevin, an investment analyst at Beaufort Investment, commented: "As part of our macroeconomic monitoring, we track the OECD's Composite Leading Indicators on a monthly basis, which give a broad-based indication of where each economy sits in the business cycle. These leading indicators align with the June Economic Outlook released by the OECD this morning. As expected, we have seen a sharp slowdown in economic activity with the data for the UK looking particularly poor.
"As last week's jobs numbers surprise in the US has shown, it is currently extraordinarily difficult to measure or forecast the impact of the Coronavirus shutdown. Our investment positioning aligns with the current macroeconomic uncertainty - being globally diversified and neutral on Equities following the rally we have seen since the March lows."