How will governments respond to the OECD’s forecast?
10 June 2020: The Organisation for Economic Co-operation and Development (OECD) published its global forecast. It took the unusual step of producing two forecasts: one with and one without a second wave of outbreaks of COVID-19.
The press has been vocal that the OECD’s report says that the UK economy will be hardest hit in the developed world, with GDP expected to shrink by 11.5% in 2020 with the loss of 2.4m jobs. This is because of the UK’s dependence on the services sector, which has taken a battering. However, it is only decimal points away from the situation in France and Italy. If a second wave of COVID-19 occurs, the UK, France and Italy are all looking at a 14% contraction. This is against a Euro area GDP fall of 9%, and 11.5% if a second wave breaks out.
The picture this paints is dire; but we knew it would be. It also does not tell us the whole picture. It doesn’t show how inequality will increase because GDP doesn’t tell us how wealth is distributed. It also tells us nothing about the destruction of social human and natural capital; only about output. It says nothing about the outcomes in which most people think.
But what really matters is how governments will respond and how long the recovery will take. While the report forecasts an initial bounce, the recovery is going to take a long time and leave us with a fall in living standards and high unemployment. Sectors that are worst hit – tourism, hospitality and entertainment – also have high levels of low-skilled, young and informal workers. In other words, the effect will be to push the poorest in our communities further into poverty, thereby increasing inequalities.
Oxfam’s report ‘Dignity not Destitution’ published in April 2020 highlights the disproportionate effect the coronavirus is having on the developing world, as well as on the vulnerable and women. It estimates that potentially half a billion people are being pushed into poverty.
The recovery, after an initial, rapid resumption of activity, will take a long time to bring output back to pre-pandemic levels, and the crisis will leave long-lasting scars: a fall in living standards, high unemployment and weak investment. Job losses in the most affected sectors.
The OECD has rightly called for a recovery that is not only about preserving our natural environment, but one that is socially just. Secretary-General Angel Gurría noted: ‘How governments act today will shape the post-COVID world for years to come…This is true not only domestically, where the right policies can foster a resilient, inclusive and sustainable recovery, but also in terms of how countries co-operate to tackle global challenges together. International co-operation, a weak point so far in the policy response, can create confidence and have important positive spill over effects.’