OECD’s grim forecast reveals COVID to cause ocean trade fallout

By Oviya Vaiz, June 14th 2020

“By the end of 2021, the loss of income will exceed that of any previous recession over the last 100 years outside of wartime, with dire and long-lasting consequences to people, firms and governments,” warned OECD Chief Economist Laurence Boone in a statement published recently.

The OECD has released two different reports about two different scenarios of the after effects of Corona, the first one named ‘single hit’ pointed out that the spread of the virus will reduce and be brought under control, also the global GDP will drop to 6% and the second scenario is wherein the second wave of the pandemic will hit the world and the global GDP will fall to 7.6% and the recovery process from such a degradation will be slow.

The Global trade fallout caused by the pandemic is expected to drop the world trade by 3.75% by the end of 2020’s first quarter. It is expected to fall more by the end of the third quarter.

The effects of the pandemic on world trade is expected to be more adverse compared to the global GDP. Similarly, the recovery process in 2021 under the Double hit is forecasted to be2.5% as compared to 6% under the forecasts for single recovery. The world trade is expected to fall at -9.5% in the single hit scenario and -11.5% under the double hit scenario.

 “The crisis has demonstrated the vulnerability of domestic production to sourcing inputs from distant locations through complex global value chains (GVCs),” said the OECD. Apart from trade growth, the latest Foreign Added value data has shown to have exceeded 50% in most economies. That is, the companies are forced to direct their sourcing back home. The greatest risk above trade reduction is the shortening of global value chains and rising tariff rates.

The pandemic will also affect Phase one of the US-China trade which will be undermined due to low demand as reported by OECD.