Several countries at risk of recession as Covid-19 spreads around the world.
An escalation in the coronavirus outbreak could cut global economic growth in half and plunge several countries into recession this year, the Organisation for Economic Cooperation and Development has warned.
Sounding the alarm as the disease spreads around the world and rattles investors, the OECD said that global GDP growth could plunge this year to as little as 1.5%, almost half the 2.9% rate it forecast before the outbreak took hold.
Against a backdrop of already weak GDP growth, the economies of Japan and the eurozone could slide into recession this year, it added, while warning that failure in the UK’s post-Brexit trade talks with the EU also represented a significant downside risk.
The influential Paris-based group – which represents the world’s 36 most advanced economies – urged governments around the world to take greater steps to work together, calling for an international response as Covid-19 spreads.
It said its base-case scenario was for a short-lived but severe downturn, with the focal point for the economic damage in China. It forecast that global growth would slide to 2.4% for 2020 as a whole, down from an already weak 2.9% last year. Even under its central forecast, the OECD warned that global growth could shrink in the first quarter. Chinese growth is expected to fall below 5% this year, down from 6.1% last year – which was already the weakest growth rate in the world’s second largest economy in almost 30 years.
However, the outbreak could also cause a “domino scenario” whereby global growth is severely damaged in 2020 by the virus spreading throughout advanced economies across the northern hemisphere. Alongside growth slowing by about 1.4% over the course of the year to as little as 1.5%, financial markets around the world would also crash by about 20% under this scenario.
Since the outbreak in January, close to 85,000 people have been infected worldwide, with a fast-rising share of these outside China. Italy has been hardest hit so far in Europe at a delicate moment for the nation, with the eurozone’s third largest economy already shrinking. Stock markets around the world tumbled last week by more than 10% in the worst week since the global financial crisis as fears mount.
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