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Economic impact of the coronavirus crisis is 'dire everywhere,' OECD says

Key Points
  • If there is a second wave of the coronavirus, the OECD said global growth will contract by 7.6% in 2020, and "remain well short" of its pre-crisis level by the end of next year.
  • France, the United Kingdom, Spain and Italy are expected to face the sharpest economic contractions this year.
Guests arrive at the presentation of the candidacies for the 2020 World Expo, at the OECD headquarters on November 27, 2013 in Paris, France.
Antoine Antoniol | Getty Images News | Getty Images

The coronavirus pandemic is on track to cause the worst recession outside of wartime in 100 years, the Organization for Economic Cooperation and Development warned on Wednesday. 

The strict lockdowns and travel restrictions imposed by countries around the world have led to a steep decline in business activity. Global supply chains have been halted, inequality and debt levels have soared, and confidence levels have fallen.

"Economic impacts are dire everywhere," the OECD summarized in its Economic Outlook, published Wednesday.

"The recovery will be slow and the crisis will have long-lasting effects, disproportionately affecting the most vulnerable people."

Laurence Boone, chief economist at the OECD, told CNBC's Julianna Tatelbaum on Wednesday that "the uncertainty we are facing is very high," but the organization expects economic activity to pickup in the coming months.

"We are going to see an upturn, which will look like a V-shape recovery as de-confinement proceeds and because some sectors are reopening and can work," Boone said. A so-called "V-shaped" recovery refers to a sharp decline in economic activity which is then matched by an abrupt rebound.

"But, because tourism, entertainment, leisure, and so on cannot work as before, this V will start very quickly and then the climb up to where we were before is going to be much more difficult," she added.

Two scenarios

The OECD published two forecasts for global growth: the first assuming there is a second wave of Covid-19 infections; the second assuming a second wave is avoided.

In its first scenario, the OECD said global growth will contract by 7.6% in 2020, and "remain well short" of its pre-crisis level by the end of next year. If there is no second wave, the OECD said the world economy will still contract by 6% in 2020, but will recover to almost pre-crisis levels by the end of 2021.

"Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances," the OECD said. 

It added that "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."

U.S. economy to contract above 7%

France, the United Kingdom, Spain and Italy are expected to face the sharpest economic contractions this year. These countries are among those worst-hit by the health crisis so far. 

However, growth in the United States is also expected to contract by 7.3% in the single-hit scenario and by 8.5% if there's a second wave.

The OECD also warned about the impact of the pandemic on young people. Those aged between 15 and 24 represent the biggest share of workers in the hardest-hit sectors, such as tourism.

"Unemployment in the median OECD economy this year is projected to be at the highest level for twenty-five years, and ease only slowly in 2021," it warned.

"The scarring effects from job losses are likely to be felt particularly by younger workers and lower-skilled workers, with attendant risks of many people becoming trapped in joblessness for an extended period."

Furthermore, emerging economies are also expected to be badly hit. Countries such as Brazil and Argentina rely on demand from advanced countries, which are also struggling. 

"Commodity producers with limited financial buffers and low-income countries with underdeveloped domestic financial markets and a small domestic investor base are likely to be particularly affected," the OECD added.