Second Covid-19 wave ‘would wipe out economic recovery’

A second wave of Covid-19 would wipe out any chance of economic recovery in Ireland either for this year or next, the Organisation for Economic Co-operation and Development (OECD) has warned.

In its latest economic forecast, the OECD said that as things stand, GDP will likely fall by 6.8 per cent this year due to the pandemic, before returning to 4.8 per cent growth in 2021.

It warned, however, that the economy will contract by 8.7 per cent this year with little or no sign of recovery in 2021 if a coronavirus outbreaks reoccurs.

The OECD also forecast that the unemployment rate here could be anywhere between 10.8 percent and 12.3 per cent in 2020.

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The figures come as the organisation predicted the global economy would contract 6 per cent this year before bouncing back with 5.2 per cent growth in 2021, providing the coronavirus outbreak is kept under control.

“Supportive economic policies are cushioning workers and businesses from the full impact of the shock. However, depressed confidence and impaired household and business balance sheets will hold back the recovery as the economy further opens,” the OECD said of Ireland.

It warned the Government to be prepared to extend existing support measures in the event of a second wave, and said policies that provide additional liquidity to SMEs may be required.

The OECD said the pattern of recovery is uncertain. And it said while the Irish economy recovered strongly from the economic crash, legacies from that period remain which could hinder a return to growth, particularly in a scenario where there is a second Covid-19 wave.

“Policymakers should stand ready to extend existing support measures further if sanitary restrictions persist, or are reinstated in the second half of the year. Loan guarantees and public equity injections for viable but liquidity-constrained firms should be undertaken as needed,” it advised.

“To minimise the damaging effects of unemployment, active labour market programmes will need to be reoriented to the new cohort of jobseekers, added the OECD.

Prosperity and the pandemic

The Paris-based policy forum on Wednesday said the global economy will suffer the biggest peace-time downturn in a century before it emerges next year from the coronavirus-inflicted recession.

The US economy, the world’s biggest, is seen contracting 7.3 per cent this year before growing 4.1 per cent next year. In the event of a second outbreak, the US recession would reach 8.5 per cent this year and the economy would grow only 1.9 per cent in 2021, said the OECD.

Meanwhile, the euro zone is heading for a downturn of 9.1 per cent this year followed by 6.5 per cent growth next year. But the recession could reach 11.5 per cent this year in the event of a second outbreak, followed by growth of 3.5 per cent in 2021.

Britain is expected to experience the worst downturn among the countries covered by the OECD, with its economy forecast to contract 11.5 per cent this year before recovering 9 per cent next year. A second outbreak could trigger a slump of 14 per cent this year followed by a rebound of 5 per cent next year, said the organisation. – Additional reporting: Reuters