- Governments should ensure more international co-operation in responding to the health challenge. Impressive co-ordination in the scientific effort is ongoing but it needs to be complemented by measures to ensure that vaccines and treatments, after being developed and produced, get to people as quickly as possible. Had a vaccine for the SARS-CoV-1 been developed at the time, it would have accelerated the development of one for the current outbreak given that the two viruses are 80% similar. Today, regulatory agencies (the FDA in the US, the European EMA, among others) should work together to remove regulatory hurdles for vaccines and treatments.
- Governments should advance joint policies, rather than taking them in an uncoordinated way. They should finance an immediate buffer to economies to cushion the negative impact and speed up the recovery. This includes immediate spending on:
- Health care: extensive testing; treatment for all patients, regardless of whether they are insured or not; support to health-care workers; return of health-care retirees, while protecting high-risk groups; the enhanced provision of masks, ICUs and respirators, among others;
- People: short-term employment schemes, reduced requirements to benefit from unemployment insurance, cash transfers to the self-employed and support to the most vulnerable;
- Firms: charges and tax payment delays, temporary VAT reductions or deferrals, enhanced access to working capital through credit lines or state guarantees, special support packages for SMEs, especially those in services and tourism.
A well planned investment programme – co-ordinated among countries – notably in health research, development and infrastructures, should be given priority after the height of the crisis.
- Central Banks have already launched bold actions to support the economy but financial regulation and supervision is another area where co-ordination could produce better outcomes. The economic dislocation caused by the COVID-19 crisis is hitting the functioning of financial markets, banks’ incomes and balance sheets. A co-ordinated approach to monitoring, diagnosing emerging strains and taking regulatory action would yield much more positive results than disjointed and inconsistent responses.
- Everything must be done to restore confidence. While the key to that is bringing the virus outbreak under control, it would also help to address the factors that were sapping confidence even before COVID-19 appeared on the scene, including by removing trade restrictions.
Today, as part of the OECD’s response to this crisis, we are launching a platform that will provide timely and comprehensive information on policy responses in countries around the world, together with OECD advice, in some cases. We will also be releasing a series of policy briefs on a range of subjects in the context of the COVID-19 crisis: on vaccines, taxes, education, SMEs, etc. Thus, we hope to help governments learn from each other in real time, facilitate co-ordination, and contribute to the necessary global action when confronting this enormous collective challenge.
In our global world, many issues cannot be dealt with anymore within domestic boundaries, be it a virus, trade, migration, environmental damages or terrorism. Multilateral action creates positive spillovers that will be more effective for each country than if they acted alone.
We need a level of ambition similar to that of the Marshall plan – which created the OECD – and a vision akin to that of the New Deal, but now at the global level.
Cool heads, individual and collective discipline, a heightened sense of solidarity and a shared sense of purpose will allow us to overcome these unexpected and challenging circumstances.
Efforts to contain virus and save lives should be intensified, and governments should plan stronger, more co-ordinated measures to absorb growing economic blow
Increasingly stringent containment measures, needed to slow the spread of the Coronavirus (Covid-19), will necessarily lead to significant short-term declines in GDP for many major economies, according to new OECD projections.
OECD Secretary General Angel Gurría, in preparation for the G20 Virtual Summit that took place yesterday, unveiled the latest OECD estimates showing that the lockdown will directly affect sectors amounting to up to one third of GDP in the major economies. For each month of containment, there will be a loss of 2 percentage points in annual GDP growth. The tourism sector alone faces an output decrease as high as 70%. Many economies will fall into recession. This is unavoidable, as we need to continue fighting the pandemic, while at the same time increasing efforts to be able to restore economic normality as fast as possible.
“The high costs that public health measures are imposing today are necessary to avoid much more tragic consequences and even worse impacts on our economies tomorrow,” Mr Gurría said, in his G20 Summit Statement. “Millions of deaths and collapsed health care systems will decimate us financially and as a society, so slowing this epidemic and saving human lives must be governments’ first priority.”
“Our analysis further underpins the need for sharper action to absorb the shock, and a more co-ordinated response by governments to maintain a lifeline to people, and a private sector that will emerge in a very fragile state when the health crisis is past.”
Mr. Gurría welcomed the outcome of the G20 Virtual Summit, hosted by the Saudi Presidency, and the resolve shown by the G20 members to use all ammunition to support people and SMEs. In his statement, Mr Gurría built on his recent call for a “global Marshall Plan” to counteract the pandemic’s effects. To “inoculate” economies to current and future shocks, he urged the G20 Leaders to act immediately, to:
- Recapitalise health and epidemiological systems;
- Mobilise all macro-economic levers: monetary, fiscal, and structural policies;
- Lift existing trade restrictions especially on much needed medical supplies;
- Provide support to vulnerable developing and low-income countries;
- Share and implement best practices to support workers and all individuals, employed and unemployed – particularly the most vulnerable;
- Keep businesses afloat, particularly small and medium-sized firms, with special support packages in hardest hit sectors such as tourism.
Mr Gurría stressed that the implications for annual GDP growth will ultimately depend on many factors, including the magnitude and duration of national shutdowns, the extent of reduced demand for goods and services in other parts of the economy, and the speed at which significant fiscal and monetary support takes effect.
In all economies, the majority of this impact comes from the hit to output in retail and wholesale trade, and in professional and real estate services. There are notable cross-country differences in some sectors, with closures of transport manufacturing relatively important in some countries, while the decline in tourist and leisure activities is relatively important in others.
The impact effect of business closures could result in reductions of 15% or more in the level of output throughout the advanced economies and major emerging-market economies. In the median economy, output would decline by 25%.
Variations in the impact effect across economies reflect differences in the composition of output. Many countries in which tourism is relatively important could potentially be affected more severely by shutdowns and limitations on travel. At the other extreme, countries with relatively sizeable agricultural and mining sectors, including oil production, may experience smaller initial effects from containment measures, although output will be subsequently hit by reduced global commodity demand.
There will also be some variation in the timing of the initial impact on output across economies, reflecting differences in the timing and degree of containment measures. In China, the peak adverse impact on output is already past, with some shutdown measures now being eased.
The OECD has committed its expertise to support governments in developing effective policies in any sector necessary to slow the pandemic’s spread and blunt its economic and societal effects – from health, taxes, labour and employment to SMEs, education, science and technology, trade and investment and more.
Earth Day provides us with the opportunity to take a comprehensive look at the sustainability of our environmental, economic and social systems, at the way they interact and create more resilient societies. This integrated approach to human health and well-being is at the core of OECD analysis. For example, the disruption of forests and ecosystems, rapid urbanisation and illegal wildlife trade bring people into closer contact with wild animal species, which in turn exposes humans to virus-carrying animals via zoonotic transfer. Exposure to air pollution increases the risk of cardiovascular, respiratory and development diseases, raising the vulnerability of individuals and communities, especially the poorest, to the effects of pandemics. Water access and quality are key to battling the spread of pandemics, while effective waste management is essential to minimize secondary impacts upon health and the environment from the pandemic.
The crisis has shown that we can be more frugal in our consumption patterns, to be better aligned with environmental goals. It has put a temporary break on CO2 emissions, along with life-shortening air pollutants from transportation and industrial activity. For example, in China, industrial shutdowns are estimated to have caused a 25% drop in CO2 emissions in February 2020, compared with the same month in 2019. This short-term drop won’t have longer-term impacts on the challenges posed by climate change. We need policies to support and build on the environmental gains we are seeing. The experience of previous crises, including the 2008 Great Recession, shows that temporary drops in emissions have been more than compensated by stronger growth of emissions in the following years.
As the health crisis comes under control, the question will become how to restart the economy and generate jobs, while dealing with the looming challenge of climate change. The messages here are very familiar but have even greater resonance now. We need to step up ambitions to produce a low-carbon recovery. We need to stop building new infrastructure and capital assets that will lock in carbon-intensive systems that undermine long-term climate objectives. Access to low-cost financing and flexibility on deadlines for incentive measures such as tax credits can be crucial for the survival of renewable energy investors and should be preserved. Signals from carbon prices, emission standards, environmental taxes and other regulations need to be maintained to provide more certainty and long-term stability for low-carbon activities, investments and innovation. The support provided to companies should be increasingly accompanied by stronger environmental standards.
The health crisis has also brought to light the inequalities and fragility of our societies. At the beginning of the crisis, 40% of households in the OECD were three months away from poverty. The situation in the majority of developing countries is ever more dire. Children and vulnerable youth are the ones who often draw the shortest straw. We must ensure the post-COVID recovery integrates inclusiveness with climate and biodiversity concerns, otherwise future generations will be responsible not only for repaying the massive debt that is now being built up, but also for shouldering the burden of dealing with future crises linked to climate change and biodiversity loss. Poverty and income inequality can limit severely their chances to emerge stronger in the post-COVID world.
A just, net-zero emissions and resilient recovery should create new opportunities for all and reduce inequalities in outcomes, for example with respect to health, where large economic returns from enhanced human capital could be achieved. Better air quality, water and sanitation, biodiversity, and waste management can reduce the vulnerability of communities to pandemics and at the same time strengthen resilience to other types of risks – including climate-related. We must also include a gender angle in our strategies and actions, and focus our support on the most vulnerable countries, which are also the ones most exposed to climate change.
Lessons learned from other crises need to be applied. They can help to re-activate best practices and avoid misguided approaches. To accelerate a fair, low-carbon recovery, three dimensions stand out for now, at the early stage of the crisis:
- Aligning the short-term emergency responses to the achievement of long-term economic, social and environmental objectives and international obligations (the Paris Agreement and the SDGs). This includes, in the short run, securing jobs while avoiding unconditional subsidies to polluting activities.
- Preventing both lock-in of high-emissions activities and worsened well-being of those in the bottom 40% of the income distribution. COVID-19 has dramatically worsened the conditions of vulnerable groups, both in advanced and developing economies. The efforts to build an inclusive and sustainable future must prioritise a fair transition to a low-carbon economy.
- Systematically integrating environmental and equity considerations into the economic recovery and stimulus process. Support to the most affected sectors and investment in infrastructure must pass the test for contributing to a low carbon economy going forward.
Count on the OECD to support an inclusive, low-emissions and resilient recovery in the post-COVID world. Protecting the planet is the most important inter-generational responsibility we have today.