Summary
- British economy is expected to shrink by about 14 per cent in 2020
- OECD also predicts of a far deeper economic hit to the world economy, should there be a resurgence of the pandemic
- Hopes for an effective vaccine, so that a second outbreak may be avoided
- Optimistic view of the British economy as held by Chancellor Sunak, and his continued support for jobs and livelihoods
- Vision of the Boris Johnson government on how it wants to deal with the post-pandemic economic scenario.
The Organization for Economic Cooperation and Development (OECD) has recently stated that the British Economy is going to be the worst hit due to the pandemic in the developed world. Depicting a worst-case scenario of fall in GDP of 14 per cent for 2020, it termed the economic crisis as the worst the country has faced in a century. On the global front, the OECD predicted that the global economy would shrink by 6 per cent this year before making a recovery of 5.2 per cent the next year of 2021. The coronavirus pandemic has brought the world economy to a grinding halt with most of the developed countries expected to register negative growth for at least the next quarter. The British economy, however, is already expected to witness two consecutive quarters of negative growth, putting it firmly on the road to recession.
The OECD in its prediction has come up with two scenarios of how the situation might shape up on the pandemic front in the next few months. The first scenario is when the pandemic gets controlled in the next few months, and there is no resurgence. Under this scenario, the OECD predicts that the British economy will shrink by 11.5 per cent and would be able to recover fairly quickly. In the second scenario, it considers a situation when there is a resurgence of the pandemic in the winter months as is being predicted by several experts. Under that scenario, the organization predicts that the British economy will shrink by about 14 per cent in 2020, and the recession will be much deeper and much elongated.
Incidentally, a month back the Office of the National Statistics and the office of the Budget Responsibility, both UK Government bodies had also come out with similar predictions. While the Office of Budget Responsibility predicted that there would be a sharp recovery next year, the Office of the National Statistics had predicted that the unemployment rate in the country would hit a record high before things start improving next year. The International Monetary fund also in its report published last month had predicted that the global economy would shrink by as much as 3 per cent for 2020 before recovering by 5.8 per cent in 2021. Among the worst-performing countries would be the developed countries led by European, whereas the emerging economies like India and China will be the least affected.
All hopes, however, to prevent a resurgence of the pandemic lies with the progress of the corona vaccine development that is currently under process in many countries. In earlier epidemic cases of SARS and MERS both being caused by different strains of the coronavirus, it has been observed that in the winter months there is generally a flare-up of the number of infections, meaning that a colder climate is more conducive to the virus. It is with this presumption in mind; that it is being predicted by many experts that there will be a flareup in the number of the current coronavirus pandemic in many parts of the world during the winter months. If such an occurrence does take place, a new set of lockdown measures would have to be implemented, probably, resulting in deeper economic stress for the world economy. It is in this regard that the timely arrival of a vaccine is important. Currently, there are various companies and research groups around the world who are working to make a vaccine against the virus. At the earliest, a successful vaccine could be available by September of this year, after which it will take a few more months to vaccinate a significant part of the British population. Thus there is a very high probability that a second wave of the pandemic can be effectively avoided.
The British Chancellor of Exchequer Rishi Sunak while reacting to the observations being made by the OECD expressed his optimism that the British Economy will make a sharp recovery once the dust settles on the pandemic front. He stated that in the past three months, the government has come out with various measures to protect jobs and livelihoods in the country and that this will ensure that bounce back will be swift and strong. The London Stock Exchange, however, reacted negatively to the observation made by the OECD and lost most of the early gains made early during the day.
The Boris Johnson government, however, has stated on several occasions that it will not implement any austerity measures to clear off the debts accumulating on its books because of the various stimulus packages being rolled out in the past couple of months. The Government has emphasized that it will continue with its expansionary spending programme and aim for higher growth of the economy and would make their way out of the public debt burden. The government currently has an accumulated public debt burden of nearly £300 billion, and it is expected to go up further, as new measures are rolled out to deal with the pandemic induced slowdown.
The observations made by the OECD are on the same lines of what had already been predicted by the IMF, Office of the National Statistics or the Office of the Budget Responsibility. The government is trying to handle the challenge to the best of its capacity. The key, however, to curtail the economic damage caused by the pandemic lies with the early development of a vaccine, which the OECD has also cited in its observations.
