The outbreak of the corona virus plunged the global economy into the worst downturn since the global financial crisis, warned the Organization for Economic Cooperation and Development on Monday and urged governments and central banks to fight back to avoid an even steeper slump.
The global economy is expected to grow by only 2.4% this year, the lowest since 2009, and after a forecast of 2.9% in November, the OECD said in an update of its prospects.
The Paris-based political forum predicted that the global economy could recover to 3.3% growth in 2021, provided that the epidemic in China peaked in the first quarter of this year and other outbreaks turned out to be mild and limited.
However, if the virus spreads to Asia, Europe and North America, global growth could drop to only 1.5% this year, the OECD warned.
"The main message of this downward scenario is that it would put many countries in recession, which is why we urge that measures be taken as quickly as possible in the affected areas," OECD chief economist Laurence Boone told Reuters.
She said governments need to support health care systems with additional wages or tax breaks for workers who work overtime and short-time work for companies struggling with falling demand.
Governments could provide companies with further financial relief by cutting social security contributions, suspending VAT, and providing emergency loans to particularly difficult sectors like travel, Boone said.
Alluding to some European countries like fiscal conservative Germany, she said governments shouldn't worry about spending ceilings, while programs like unemployment insurance do their job to mitigate the blow from the downturn.
In the meantime, central banks could send reassuring signals to stressed financial markets that they are ready to further loosen monetary policy and provide liquidity to banks when needed.
"We don't want to add a financial crisis to the health crisis," said Boone.
Officials from the US Federal Reserve, the European Central Bank and the Bank of Japan have signaled in the past few days that they are ready to do more if necessary.
If the situation worsens, a coordinated response to central bank easing and fiscal incentives amounting to 0.5 percent of economic output in the G20 countries could result in 1.2 percent higher growth within two years, according to the OECD.
"A G20-coordinated response to health, fiscal and monetary policy would not only send a strong message of trust, but would also multiply the impact of national policies," said Boone.
So far, international coordination appears to have been limited to the group of seven nations whose finance ministers are scheduled to hold a conference call this week, French finance minister Bruno Le Maire said on Monday.
In the base case of the OECD, where the situation does not worsen dramatically, China would bear the brunt of the downturn this year, lowering its forecast for 2020 to a 30-year low of 4.9%, after 5.7% in November.
The second largest economy in the world would recover to 6.4% of the pre-coronavirus level in 2021 with growth of 6.4%, but not before the effects of its downturn went much further.
In the euro area, where the number of cases is growing rapidly, growth was 0.8% after 1.1% in November. Italy saw flat growth this year as it had difficulty curbing a fall. Growth in the euro area rose to 1.2% in 2021.
The virus was found to have a limited impact on US growth, which was 1.9% compared to 2.0% in November. According to the OECD forecast, growth would then rise to 2.1% by 2021.
(Except for the headline, this story was not edited by NDTV staff and published from a syndicated feed.)