OECD economies shrink by a record 9.8% in second quarter on pandemic hit

The decline is considerably higher than the 2.3% contraction recorded at the height of the financial crisis

A man wearing a facemask walks across London Bridge. The OECD area economy contracted a record 9.8% in the second quarter of 2020. AFP

Economies in the Organisation for Economic Cooperation and Development (OECD) area suffered the worst contraction on record in the second quarter of 2020 as economic activity dried up in the wake of movement restrictions to curb the spread of Covid-19.

Real gross domestic product for three months to the end of June of the 37-member group shrank an “unprecedented” 9.8 per cent, compared to a contraction of 0.9 per cent in the first quarter of this year, the OECD said in a statement on Wednesday, citing its provisional estimates. Quarterly GDP fell 10.9 per cent compared to the same period in 2019, when it expanded 1.5 per cent.

“This is the largest drop ever recorded for the OECD area, significantly larger than the 2.3 per cent [contraction] recorded in the first quarter of 2009, at the height of the financial crisis,” the OECD said.

The OECD includes some of the world’s biggest economies such as the US, Euro area countries, the UK and Canada.

Its member states have rolled out a number of stimulus packages to help their economies cope with the pandemic. In March, the US announced a $2.3 trillion (Dh8.4tn) relief package to support families as well as businesses affected by the crisis. The country is also reviewing a second stimulus package that could run into trillions of dollars but that is facing an impasse as politicians in the world’s biggest economy are at odds about its size and terms. The UK has also pushed out a $39 billion stimulus package to support its economy.

The UK was the worst hit of the G7 economies, with GDP shrinking by 20.4 per cent, compared to an average of 12.1 per cent. “In France, where lockdown measures were among the most stringent, GDP declined by -13.8 per cent, after a drop of -5.9 per cent in the previous quarter,” the OECD said.

Italy, Canada and Germany also saw GDP contraction in the quarter by 12.4 per cent, 12 per cent and 9.7 per cent respectively. Italy's economy shrank 5.4 per cent, while Canada and Germany’s contracted 2.1 per cent and 2 per cent, respectively.

“In the US, where many states introduced ‘stay-at-home’ measures late [in] March, GDP contracted slightly less -9.5 per cent, compared with -1.3 per cent (in the previous quarter),” the OECD said.

In Japan, where containment measures were less stringent, GDP contracted by 7.8 per cent in the second quarter of 2020, while in the Euro area and the European Union, GDP shrank 12.1 per cent and 11.7 per cent respectively, it added.

Real household income per capita rose marginally in the first quarter of 2020, despite a 2 per cent fall in real GDP in the OECD area, the Paris-based organisation said earlier this month. The employment rate, defined as the number of working-age people with jobs, however, fell to 68.6 per cent in the first three months of the year, compared to 68.9 per cent in the previous quarter, it said in July.

The economic outlook of the OECD area remains clouded as the number of Covid-19 cases continues to rise in the US and most countries in Europe are battling a second wave of infections. As of Wednesday, there were more than 24 million global coronavirus cases, with about 16.6 million recoveries, and the death toll stood at more than 823,000, according to Worldometer.