“Uncertainty now is as high as it has ever been” OECD Briefing
Graph Source OECD
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% for a single wave scenario or 7.6% 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.
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% from 5.4% 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. The recent publication The Inequality Conundrum; Pathways Ahead for India, highlights concerns regarding the informal sector in India, leading to socio-economic disparities with the society.
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 $9.2B taking the total Forex tally to $487B, 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% single wave Vs 7.3% 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.
Graph: Data Source OECD
During the pandemic, the work done by the Indian government under Pradhan Mantri Jan-Dhan Yojana (PMJDY) helped in enabling cash transfers to more than 200 million rural women and 30 million old age and disabled people with in-kind support to ~ 66 per cent of Indian population along with supporting small and medium sector among others.
Key policy measures recommended by OECD enable a smooth transition to better tomorrow. The key focus is on the healthcare sector to help transit workers to new jobs, build health care systems including PPE, test, track, and isolate to fight the pandemic along with global corporation to develop, manufacture and distribute the vaccines. Facilitate restructuring for SMEs, keep fiscal and monetary policies supportive of fostering businesses during the pandemic, enable resilient global supply chains and facilitate green transition of the economy etc.