The UK economy is set to be the hardest hit among the world’s developed countries due to the coronavirus pandemic, a major international organisation has warned.
The Organisation for Economic Co-operation and Development (OECD) said Britain’s economy was likely to slump by 11.5% in 2020 – but could contract by 14% if there is a second wave of Covid-19 later this year.
Its latest global economic outlook shows the UK’s plunge in gross domestic product (GDP) outstripping even that of other badly impacted European countries, in a “single-hit scenario”, with falls of 11.4% expected in France, 11.1% in Spain, 11.3% in Italy and 6.6% in Germany.
The US is on course for its economy to shrink by 7.3% in 2020, and 2.6% in China, the OECD said.
The OECD expects the world economy to contract by 6% this year, with all countries suffering a deep recession, and cautioned that the recovery will be slow and “possibly interrupted”.
It predicts global GDP to recover with a 5.2% rise in 2021.
But in its equally possible “double-hit scenario”, where there is a second wave of Covid-19 in 2020, world GDP could plummet by 7.6% this year and the recovery would be even slower next year, with activity edging up by just 2.8%.
The OECD warned: “The crisis will cast a long shadow over the world and OECD economies.
“By 2021, it will have taken real income per capita in the majority of OECD economies back to 2013 levels in the double-hit scenario, and to 2016 levels in the single-hit scenario.”
The UK’s economy is expected to bounce back by 9% in 2021, but in the second wave scenario, the recovery would be slow and painful, with growth of just 5% in 2021.
It said UK activity has suffered particularly badly, because of Britain’s largely service-based economy.
The services sector, which includes financial services, retail, hospitality, real estate and tourism, makes up around three quarters of UK GDP and has been badly impacted by the lockdown restrictions to contain Covid-19.
The picture is grim worldwide, however, and many countries face ballooning government debt as they seek to offset the economic effects of the pandemic.
OECD chief economist Laurence Boone said: “Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances.
“By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.”
She added: “Extraordinary policies will be required to walk the tightrope towards recovery.
“Even if growth does surge in some sectors, overall activity will remain muted for a while.”
Shadow chancellor Anneliese Dodds said: “Today’s evidence from the OECD is deeply worrying, showing the UK was particularly exposed when the coronavirus crisis hit.
“The Government’s failure to get on top of the health crisis, delay going into lockdown and chaotic mismanagement of the exit from lockdown are making the economic impact of this crisis worse.”