Economy 10 June 2020, 1:46pm

OECD: world faces worst peacetime crisis of the last 100 years

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The Organisation for Economic Cooperation and Development (OECD) projects the deepest global economic recession the world has seen in peacetime in the last 100 years.

If a second wave of infections in the coronavirus pandemic is avoided, global economic activity is expected to fall by 6% in 2020, but it is to rebound to a growth of 5.2% in 2021, the OECD projects. In this 'single-hit' scenario the OECD expects unemployment at 9.2% this year and 8.1% in 2021.

If a second outbreak occurs triggering a return to lockdowns, world economic output is forecast to plummet 7.6% this year, before climbing back 2.8% in 2021. At its peak, unemployment in the OECD economies would be more than double the rate prior to the outbreaks, with little recovery in jobs next year. The 'double-hit' scenario envisages unemployment at 10% this year and 9.9% next year.

These two scenarios, which are by no means exhaustive, were drawn up due to the "extraordinary uncertainty" the world is facing.

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.

Euro area GDP is expected to contract by 9.1% this year in the single-hit scenario and by 11.5% if a second wave hits. Germany's economic output is to fall 6.6% in the first and by 8.8% in the second scenario. In light of these prognoses it is no surprise that the OECD forecasts 8.0% recession for Hungary this year in case of a single hit and 10% GDP contraction in case of a double hit. In the first case, GDP growth is seen rebounding to 4.6% in 2021, while in the latter case recovery would be only 1.5%.

The world's second-largest economy, the United States, is to plunge into a 7.3% recession this year without a second wave and by 8.5% if the pandemic flares up again.

The OECD said that in order to mitigate the economic fallout from COVID-19 countries will need an ultra-loose monetary policy and fiscal stimulus (a boost to government debts) until their economic situation improves. According to the report, health care systems must be strengthened and targeted support needs to be provided for corporates and households. Yet, a drastic surge in unemployment rates is inevitable. The OECD thinks that recovery will be muted even if a second wave does not break out, and world economy will fail to reach pre-crisis levels even by the end of the forecasting horizon.