OECD warns world leaders about 'precarious' global economy hit by coronavirus

The OECD has told world leaders they can’t sit back and let the coronavirus ravage their economies, warning that the world is in “its most precarious position since the global financial crisis”.

OECD warns world leaders about 'precarious' global economy hit by coronavirus

The OECD has told world leaders they can’t sit back and let the coronavirus ravage their economies, warning that the world is in “its most precarious position since the global financial crisis”.

In a sign not seen since the 2008 banking collapse, the IMF and World Bank issued a joint statement saying they stood ready to help the world’s poorest nations, as the “human tragedy and economic challenge” of the Covid-19 virus take hold.

In an unusually strong rebuke, the Paris-based OECD, which brings together the world’s richest economies, including Ireland, warned that an already “fragile” world economy was at risk if its worst fears are realised.

Governments of the big economies “cannot afford to wait” and should be planning to support their healthcare systems and their most vulnerable industries.

“The virus is bringing considerable human pain. It is also resulting in significant economic disruption from quarantines, restrictions on travel, factory closures and a sharp decline in many service sector activities,” said OECD chief economist Laurence Boone.

If its fears materialise, the OECD warned that taking piecemeal action will not work. Governments will need to go much further, as “co-ordinated policy actions across all the major economies would be needed to ensure effective healthcare provision around the world and provide the most effective stimulus to the global economy”.

“Regardless of where the virus spreads, the world economy, previously weakened by persistent trade and political tensions, has already suffered a sharp setback,” said the OECD.

Its new forecasts project a rapid slowdown in the Chinese economy and for the eurozone “to remain sub-par, at around 1% per annum on average in 2020-21”, as the fallout from the virus hits hard. In Asia and beyond, it notes that Chinese tourists account for a valuable slice of spending.

The OECD outlook for the eurozone and the UK assume some sort of free trade deal for goods is struck, but it added:

“Even if this is implemented smoothly, the higher costs for service exports and non-tariff administrative barriers are likely to weigh on exports and output growth through 2021.”

The warning comes amid speculation that the world’s central banks will act to take concerted action to cut interest rates in the coming days.

However, the effectiveness of further cuts in ECB’s key interest rates, which are already in negative territory, to stimulate the faltering eurozone economy have long been questioned, not least by the ECB president Christine Lagarde herself. She has repeatedly said she wants the largest eurozone economies to spend more to boost demand.

For their part, the IMF and World Bank said global co-operation was “essential” to get ahead of the economic consequences of the virus.

“The IMF and the World Bank Group stand ready to help our member countries address the human tragedy and economic challenge posed by the Covid-19 virus,” they said in a statement.

“We are engaged actively with international institutions and country authorities, with special attention to poor countries where health systems are the weakest and people are most vulnerable.”

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