The pandemic brings with it the third and greatest economic, financial and social shock of the 21st Century, after 9/11 and the Global Financial Crisis of 2008. Stringent measures being applied, albeit essential to contain the virus, are thrusting our economies into an unprecedented “deep freeze” state, from which emergence will not be straightforward or automatic.
The OECD calls for a sizeable, credible, internationally co-ordinated four-pronged effort to provide the necessary resources to deal with the immediate public health emergency, to buffer the economic shock and develop a path towards recovery.
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.
Full statement on OECD
Related interview for BBC: Global economy will suffer for years to come, says OECD
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