OECD INTERIM ECONOMIC OUTLOOK
Coronavirus: the world economy at risk Laurence Boone OECD Chief Economist 2 March 2020 Access the underlying data :oe.cd/ieo-03-2020-handout-data http://www.oecd.org/economy/outlook/ ECOSCOPE blog : https://oecdecoscope.blog/
The economic situation was stabilising before Covid-19 GDP growth %, year-on-year
7 6 5 4 3 2 1 0
World
G20 Advanced
US
Euro area
Japan
G20 Emerging
China 2
Source: OECD Economic Outlook database.
OECD Interim Economic Outlook projections Real GDP growth
%, year-on-year. Arrows indicate the direction of revisions since the November 2019 Economic Outlook 2019 2.9
2020 2.4
2021 3.3
G20
2019 3.1
2020 2.7
2021 3.5
Australia
1.7
1.8
2.6
Argentina
-2.7
-2.0
0.7
Canada
1.6
1.3
1.9
Brazil
1.1
1.7
1.8
Euro area
1.2
0.8
1.2
China
6.1
4.9
6.4
Germany
0.6
0.3
0.9
India1
4.9
5.1
5.6
France
1.3
0.9
1.4
Indonesia
5.0
4.8
5.1
Italy
0.2
0.0
0.5
Mexico
-0.1
0.7
1.4
Japan
0.7
0.2
0.7
Russia
1.0
1.2
1.3
Korea
2.0
2.0
2.3
Saudi Arabia
0.0
1.4
1.9
United Kingdom
1.4
0.8
0.8
South Africa
0.3
0.6
1.0
United States
2.3
1.9
2.1
Turkey
0.9
2.7
3.3
World
downward by 0.3 pp and more
downward by less than 0.3 pp
no change
upward by less than 0.3 pp
upward by 0.3 pp and more
Note: Difference in percentage points based on rounded figures. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are members in their own right. 1. Fiscal years starting in April. 3 Source: OECD Economic Outlook database; and OECD calculations.
3
Manufacturing appeared to have bottomed out New orders in advanced economies
Global industrial production growth % 6
Quarterly
Year-on-year
PMI
58
5
56
4
54
3
52
2
50
1
48
0
2016
2017
2018
Note: RHS: The last data point is February 2020. Source: OECD Main Economic Indicators database; Markit; and OECD calculations.
Manufacturing export orders Manufacturing all orders Services orders
2019
46
2017
2018
2019 4
Employment growth was also stabilising OECD employment growth
Global retail sales growth Quarterly
% 6
Year-on-year
5
2.0
4
1.5
3
1.0
2
0.5
1
0.0
0
-0.5
2016
2017
2018
Quarterly
% 2.5
2019
2012
2014
Year-on-year
2016
2018
Note: Quarterly series are annualised. LHS: Data for retail sales are used in the majority of countries, but monthly household consumption is used for the United States and the monthly synthetic consumption indicator is used for Japan. Data for India are unavailable. Source: OECD Economic Outlook 106 Database.
2019 5
ASSESSING THE ECONOMIC EFFECTS OF COVID-19
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Economic channels Containment measures
Supply
Demand
Quarantines
Factory closures
Loss of confidence
Travel bans and restrictions
Cutbacks in service provisions
Business and tourism travels
Closure of public places
Supply chain disruption
Education and entertainment services 7
Covid-19 will have a larger economic impact than the SARS episode in 2003 China is a major commodity importer
China is more integrated in the global economy
Share of China in global demand for selected commodities
Share of China in world
% 18
2002
2018
60
16
50
14
40
12 10
30
8
Global FDI
Global tourists
Note: LHS: Estimates for global tourists are based on 2017 instead of 2019; estimates for global FDI are based on 2005/2018 instead of 2002/2019. Share of global GDP and trade in constant US dollars. Share of global FDI in current US dollars. Source: OECD Economic Outlook database; OECD Global FDI in figures (2019); World Bank Group (2019), Commodity Markets Outlook, October; and OECD calculations.
Crude oil
Global trade
Natural rubber
Global GDP
Lead
0
Zinc
2
Nickel
10
Copper
4
Aluminium
20
6
0
2000
%
2019
8
The drop in Chinese travellers will hit hard Travel services to China and Hong Kong-China, as a share of GDP 2018
% 1.2
% 8
Hong Kong - China
1.1
7
1.0 0.9
6
0.8
5
0.7 0.6
4
0.5
3
0.4 0.3
2
0.2
1 0
China
0.1 HKG
THA
0.0
NZL
AUS
SGP
ISL
JPN
CAN
HUN
FRA
CHE
USA
Note: Data for Singapore and Thailand are for spending by foreign tourists in the country. Data for Hong Kong-China are for 2017. Source: OECD Economic Outlook database; OECD Trade in Services by Partner Country; Eurostat; Singapore Tourism Board; and Ministry of Tourism and Sports, Thailand.
GBR
ITA
NLD 9
Supply chains are vulnerable Value added trade flows between China and key partners Computers, electronics and electrical equipment sector
Transport equipment sector
Value added export dependence to China, % of country’s sector output Value added import dependence from China, % of country’s sector output Share of world value added by the sector Note: 2015 data. *DAE refers to Dynamic Asian Economies: Chinese Taipei; Hong-Kong, China; Malaysia; Philippines; Singapore; Thailand and Vietnam. Source: OECD Trade in Value Added database; and OECD calculations.
10
The fall in Chinese demand will have important costs Contained outbreak scenario World GDP in 2020
% difference from baseline and contributions in % pts
0.0 -0.1 -0.2 -0.3 -0.4 -0.5
Demand Q1
Equity + Commodity prices Q2
Uncertainty Q3
Total Q4
Full-year impact on 2020 world GDP
0.5%
-0.6 -0.7 -0.8
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China in 2020Q1 and a 2% decline in 2020Q2, plus declines of 10% in global equity and non-food commodity prices in the first half of 2020, and a 10 bps rise in investment risk premia in all countries in the first half of 2020. All shocks are assumed to fade away gradually by early 2021. Source: OECD calculations using the NiGEM global macroeconomic model.
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Costs are much higher if the epidemic spreads through Asia-Pacific and the Northern Hemisphere World GDP in 2020
Downside scenario
% difference from baseline and contributions in % pts
0.0 -0.4 -0.8 -1.2
Demand Q1
Equity + Commodity prices Q2
Uncertainty Q3
Total Q4
Full-year impact on 2020 world GDP
1.5%
-1.6 -2.0
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China in 2020Q1 and a 2% decline in 2020Q2, plus a 2% domestic demand fall in most other AsiaPacific countries and advanced Northern hemisphere countries in 2020Q2 and 2020Q3,plus declines of 20% in global equity and non-food commodity prices in 2020, and a 50 bps rise in investment risk premia in all countries in 2020. These shocks are assumed to decline gradually through 2021. Source: OECD calculations using the NiGEM global macroeconomic model.
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The decline in global growth hitting all affected regions Regional impact of downside scenario Contributions to change in world GDP in 2020, % pts
China 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2 -1.4 -1.6 -1.8 -2.0
Other Asia-Pacific Q1
Europe
North America Q2
Commodity exporters Q3
Rest of the World
World
Q4
Note: This simulation shows the impact of a 4% fall in domestic demand in China and Hong Kong-China - in 2020Q1 and a 2% decline in 2020Q2, plus a 2% domestic demand fall in most other AsiaPacific countries and advanced Northern hemisphere countries in 2020Q2 and 2020Q3, plus declines of 20% in global equity and non-food commodity prices in 2020, and a 50 bps rise in investment risk premia in all countries in 2020. These shocks are assumed to decline gradually through 2021. Commodity exporters include Argentina, Brazil, Chile, Russia, South Africa and other non-OECD oilproducing economies. Source: OECD calculations using the NiGEM global macroeconomic model.
13
Loss of confidence can intensify financial stress Corporate credit defaults could rise
Financial volatility has increased
Corporate bond issuance in EMEs, 2018 USD billion
$800 Bn.
China
Implied oil price volatility
VIX
MOVE
120
Other emerging
100
600
80 400
60 40
200
Note: VIX refers to the Chicago Board Options Exchange Market Volatility Index. MOVE refers to the Merrill Lynch Option Volatility Estimate index. Source: OECD (2019), Corporate Bond Markets in a Time of Unconventional Monetary Policy; Balestra (2018); Thompson Reuters; and OECD calculations.
2019
2018
2017
0
2016
'19
2015
'15
2014
'10
2013
'05
2012
2000
2011
0
2010
20
14
GOVERNMENTS MUST ACT NOW
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Policy options to address economic implications People
Firms
Macro policy
Increase resources to the health sector
Reduce or delay tax payments for most affected sectors
Expand liquidity to banks
Step up temporary cash transfers to vulnerable households
Expand liquidity and availability of credit to firms
Ensure monetary policy responds to extreme market conditions
Reduce public sector arrears to firms
Let automatic stabilisers fully work and boost public investment
Expand short-time work schemes
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Policy coordination would provide the most effective stimulus GDP in median G20 economy
% difference from baseline and contributions in % pts Structural
1.4
Fiscal
Monetary
Confidence
Combined
1.2 1.0 0.8 0.6 0.4 0.2 0.0
Year 1
Year 2
Year 3
Long-run
Note: Scenario with all G20 economies simultaneously undertaking changes to fiscal, monetary and structural policies. Countries undertake additional debt-financed public expenditure of 0.5% of GDP for three years, monetary policy becomes more accommodative in economies with policy interest rates above zero (all countries excluding Japan, France, Germany and Italy) and productivityenhancing structural reforms raise total factor productivity by 1% after five years. Confidence is modelled by a 50 basis point reduction in investment and equity risk premia for two years. Source: OECD calculations using the NiGEM global macroeconomic model.
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Key messages Covid-19 has hit people and livelihoods • Covid-19 (coronavirus) has disrupted people’s life and the global economy • Activity has slowed dramatically in China on the back of containment measures • Negative spillovers via tourism, supply chains, commodities, confidence are growing
The spread of coronavirus could intensify a global downturn • Weakened by trade and political tensions, the global economy is vulnerable • Containment measures and lower confidence would slow affected economies • Pressure on industries with structural difficulties (autos) or that are large employers (tourism)
Governments cannot afford to wait • Increase resources to the health sector and support the most vulnerable • Ensure liquidity buffers for affected industries worldwide • Coordinate health response, monetary and fiscal support across countries
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