“Uncertainty now is as high as it has ever been” OECD Briefing
OECD released its latest Global Economic Outlook yesterday. The economic outlook models on two scenarios; one with a single wave of COVID-19 infections and second, with a double wave of COVID-19 infections. According to OECD, this is the worst economic and health crisis since World War 2 recession; OECD was established 60 years back. Global GDP to drop by 6 percent for a single wave scenario or 7.6 percent for a double wave scenario of COVID-19 outbreak. OECD has divided the pandemic into three stages: Phase 1 Containment, Phase 2 co-existing with COVID-19 and Phase 3 Vaccine and/or treatment. The world reels under unprecedented high unemployment and increased public debt as per cent of GDP. The scenario takes a pessimistic outlook if the second wave of COVID-19 infections strikes the world with a prolonged contraction in the economy. | Graph Source OECD
Tourism, hospitality and entertainment, among others the hardest hit leading to social disruption through the loss of jobs, especially for less-skilled workers including youth. OECD unemployment to climb to 9.2 percent from 5.4 percent in 2019. Although OECD stands with governments for fiscal stimulus; it outlined their concerns that the stimulus should be intended for the neediest people and focus on the highest quality investment. However, OECD pointed out correctly that the debt levels are increasing to very high levels much more than the financial crisis of 2008. The pandemic will affect the informal workers exponentially due to difficulty in connecting with them. Emerging markets are more vulnerable due to weak structural foundation in the healthcare sector, with high participation of informal sector that remains outside the social security net, low commodity prices etc.
The outflow of capital from the emerging markets are at all-time highs much more than that seen during the global credit crisis marginalizing Forex reserves. In terms of forex reserves, based on RBI data, India’s foreign reserves have increased by $9.2 billion taking the total Forex tally to $487 billion, a year of imports giving the central bank lot of flexibility to step in if the India rupee depreciates due to capital outflows. India’s GDP to fall to 3.7 percent single wave Vs 7.3 percent double wave of a COVID-19 outbreak scenario. India’s unemployment rate hovers over 20 per cent as about two-thirds of economic activity was either closed or in a slowdown.
Chart: Data Source OECD