According to the new OECD projections, the increasingly stringent and necessary measures for containing the spread of the corona virus (COVID-19) will lead to significant short-term reductions in the GDP of many major economies.

The Secretary-General of the OECD, Angel Gurría, released the Organization’s latest estimates to the G20 virtual summit, held yesterday. These estimates show that confinement will directly affect sectors that account for up to one third of GDP in major economies. Two percentage points of annual growth of the GDP will be lost for each month of confinement. The tourism sector alone is facing a decrease of up to 70% in its activity. Many economies will go into recession. This is inevitable, since we must continue the fight against the pandemic, while focusing our efforts on returning to economic normality as soon as possible.

“The high costs imposed by the public health measures today are necessary to avoid much more tragic consequences, and an even greater impact on our economies tomorrow,” Mr. Gurría said in his statement at the G20 Summit. “Millions of deaths and the collapse of our health systems would decimate us financially, and also as a society. Thus, curbing this epidemic and saving human lives must be the top priority of governments.”

“Our analysis further underscores the need to act more firmly to cushion the blow, with a more coordinated response from governments in launching a lifeline for individuals and the private sector, which will resurface much weaker when the health crisis has passed.”

Mr. Gurría positively assessed the outcome of the G20 virtual summit, sponsored by the Saudi presidency, and the determination shown by G20 members to use all the necessary resources to support individuals and the SMEs. In his statement, Mr. Gurría expounded on his recent call for a “World Marshall Plan” to counter the effects of the pandemic. In order to “immunize” citizens for future crises, he urged G20 leaders to act immediately to:

• Recapitalize the health and epidemiological systems;
• Activate all macroeconomic levers: monetary, fiscal and structural policies;
• Lift existing trade restrictions, especially with regard to much-needed medical supplies;
• Support vulnerable developing and low-income countries;
• Share and apply best practices to support workers and all individuals, employed or unemployed, particularly the most vulnerable;
• Keep businesses afloat, particularly small and mid-sized enterprises, with special support packages for the most affected sectors, such as tourism.

Mr. Gurría stressed that the consequences for annual GDP growth will depend on many factors, including the magnitude and duration of national confinement, the extent of the reduction of demand for goods and services in other parts of the economy, and the speed with which fiscal and monetary policies take effect.

In all economies, most of this impact is due to the blow to retail and wholesale activity, and professional and real estate services. There are notable differences between countries in some sectors: the closures of transportation manufacturing plants are relatively important in some countries, while the decline in tourism and leisure activities weighs more heavily in others.

The effect of business closures could result in production reduction levels of 15% or more in all advanced and major emerging market economies. Production would decline by 25% in the median economy.

The effect of this impact varies across economies, reflecting sectoral differences in the composition of production. Those countries in which tourism is relatively important could be most severely affected by travel shutdowns and limitations. On the other hand, countries with relatively important agricultural and mining sectors, as well as oil-producing countries, may experience lower initial effects due to containment measures, but production will subsequently be affected by the reduction in global demand for raw materials.

There will also be some variations across economies with respect to the timing of the initial impact on production, reflecting momentary differences and the strictness of the containment measures taken. In China, the peak negative impact on production has already passed, and some of the confinement measures are now being eased.

The OECD is committed to supporting governments to formulate effective policies in all sectors, to curb the spread of the pandemic and mitigate its economic and social effects: from health, taxes and employment, to SMEs, education, science and technology, trade and investment, among others. In response to the crisis, the OECD has launched a platform that provides timely and comprehensive data and analysis, as well as information on policy measures taken by countries worldwide.

For further information, click here and to see the full statement, click here.