Expert sounds alarm on global economy
The global economy could be facing amake-or-break moment in the COVID-19 pandemic as governments’ ability to cover the mounting costs nears its limits, the chief of the OECD warned.
Angel Gurria, who spent 14 years as the head of the Parisbased body, said while governments were right to open the spending taps this year to counter the worst recession in living memory, many are close to running out of fiscal firepower. Without greater efforts to coordinate, the next stage of crisis could see a fragmentation in the global economy with gaps widening between rich nations and cash-strapped economies.
His comments sound the alarm for world leaders as they gather for a Group of 20 meeting Saturday amid concern that the global recovery from the pandemic-induced recession could be derailed.
“Right nowyou really are seeing the limitations of someof the fiscal capacities with the economic realities,” Gurria said in a Bloomberg interview. “It’s not the last few months where you will see the damage that was done — it’s going to be in the next few months.”
Due to retire next year, the 70year-old has been a witness to many of the crunch discussions among leaders and central bankers as they tried to save the global economy from multiple blows this century. The coronavirus outbreak is just the latest in a litany of upheavals he’s faced, from the shocks of the 2008 global financial crash and the euro-area debt crisis to long-running structural issues like inequality and unemployment.
Reflecting on his time at the OECD, Gurria says there have been “ups and downs” in the G-20’s success in rising to challenges. While the group has sometimes shown a united front, it’s also been a source of tension over issues such as trade policy, climate change and currency weakness.
He said the 2009 meeting in London, which produced a pledge for $1.1 trillion program of support for the global economy, marked a quantum leap in coordination. But other efforts, like the 2014 goal of increasing global growth by 2 percent, have failed because of a lack of cooperation.
“It tends to be more effective when there is a fire to fight, like the one now,” Gurria said. “My biggest concern is that the awareness of the need for further coordination and cooperation may not be as obvious, and my greatest hope is that it will be.”
Another problem for G-20 leaders now is gauging how much will need to be spent in the crisis. It was perhaps easier in 2009, Gurria said, as governments knew whatwas required to bail out a carmaker, or pay creditors of a failed lender.
“The big difference with today’s situation is that you don’t have a known cost, you do not have a finite number,” said Gurria, an economist and former Mexican finance minister.