Resurgent Covid-19 cases next year could slash the global pandemic recovery in half at a cost of trillions of dollars, the Organisation for Economic Cooperation and Development (OECD) has warned.
The think tank’s latest outlook predicts a shallower 4.5pc slide in world growth this year than it initially feared in June thanks to faster recoveries in the US and China, before a 5pc recovery next year.
But it also sounded the alarm over the potential impact of further restrictions and a second wave of the virus as countries across the world struggle with rising case numbers and the UK’s new “rule of six” puts limits on social gatherings.
Its interim economic outlook stated: “A stronger resurgence of the virus, or more stringent containment measures, could cut 2-3 percentage points from global growth in 2021, with higher unemployment and a prolonged period of weak investment.”
The blow could wipe as much as $2.6 trillion (£2 trillion) off the size of a global economy estimated at $86 trillion (£66.5 trillion) by the World Bank in 2018.
The OECD previously said the UK would be the biggest economic victim of Covid-19 but now forecasts a 10.1pc hit to growth this year – down from 11.5pc in June but still deeper than the Bank of England’s forecast of a 9.5pc slide.
The UK is still among six major economies facing double-digit declines this year, but raging infections across the Americas, Africa and the subcontinent have put countries such as Argentina, India and South Africa on course for even bigger declines.
The UK is expected to bounce back 7.6pc in 2021, although the OECD also warned this estimate hinged on a trade deal being struck with the European Union as talks veer close to collapse.
Despite fears over mass unemployment, the think tank also called for job support schemes around the world – which were supporting some 50m jobs at peak – to be curbed.
The OECD warned against “premature budgetary tightening” but added: “The maintenance of strong fiscal support should not prevent necessary adjustments to key emergency programmes – including job retention schemes, and income support measures – to limit long-lasting costs from the crisis and encourage the needed reallocation of resources towards expanding sectors.”
Chancellor Rishi Sunak has looked to scotch speculation of tax hikes with promises to avoid a “horror show”, but faces growing pressure to extend the UK’s own furlough scheme, which expires at the end of October.
The scheme supported 9.6m jobs at its peak and still covers 11pc of the workforce or some 3.6m workers, according to the Office for National Statistics.
The OECD said furlough schemes should be changed to “support workers rather than jobs” by linking funding to training. Raising financial contributions from employers to the cost of unworked hours in these schemes could help weed out unviable businesses, the report said.
It added: “Greater flexibility may also be required to allow differentiated support for companies, with resources temporarily targeted on sectors and companies most affected by containment measures.”
Governments meanwhile also face serious economic consequences if they refuse to adapt support: “Failure to do so could hinder aggregate productivity and the economic recovery by trapping resources in non-productive ‘zombie’ firms and jobs, and reduce the prospects for job switching to more productive and higher-paid positions.”