World's 20 largest economies saw record contraction in first quarter, OECD says

The G20 nations, currently led by Saudi Arabia, represent 85% of the world’s economic output

The G20 leaders' virtual meeting in March. The average GDP in of the world's largest eocnomies contracted 3.4% in the first quarter of the year as a result of the impact of Covid-19. EPA  

The world’s 20 largest economies have contracted sharply in the first three months of the year due to the impact of the Covid-19 pandemic and measure to contain the virus, according to the Organisation for Economic Cooperation and Development (OECD).

The G20 nations’ real gross domestic product (GDP), fell 3.4 per cent in the first quarter, the Paris-based global intergovernmental organisation said on Thursday. By comparison GDP fell only 1.5 per cent in the first quarter of 2009, at the height of the financial crisis, the OECD said.

The world's second largest economy China recorded the largest contraction of 9.8 per cent, France and Italy each contracted 5.3 per cent, Germany shrank 2.2 per cent, Canada 2.1 per cent and the UK 2.0 per cent. Brazil’s economy decreased 1.5 per cent, the US 1.3 per cent and Mexico 1.2 per cent.

The contraction was less pronounced in Indonesia which shrank 0.7 per cent, Japan 0.6 per cent and Australia 0.3 per cent. India expanded 0.7 per cent and Turkey with 0.6 per cent, the only two G20 economies that recorded growth.

The G20 nations, currently led by Saudi Arabia, represent 85 per cent of the world’s nominal GDP. The group of 20 biggest industrialised nations include the European Union and 19 other countries.

The coronavirus outbreak has claimed more than 417,000 lives and infected more than 7.3 million people worldwide, according to Johns Hopkins University, which is tracking the outbreak. Both global infections and morality rate are likely being "significantly underestimated", Angel Gurria, OECD secretary general said this week.

The pandemic had forced governments to close borders and shut all but essential businesses to stem the spread of the virus. Major economies around the world are now opening up gradually, four months after the World Health Organisation declared Covid-19 a pandemic.

G20 governments and central banks have pumped about $9 trillion (Dh33tn) into the world economy to revive output, stem job losses and support small businesses.

Globally, the output is forecast to contract as much as 7.6 per cent in 2020 in the absence of a Covid-19 vaccine, according to the OECD. The World Bank has projected global output shrinking 5.2, while the IMF forecasts a 3 per cent contraction this year.

The G20 countries were among the first to introduce lockdowns and social distancing measures and those that enforced the most stringent lockdowns, saw the largest contractions in their first quarter GDP, the OECD said on Thursday.

The economic outlook for the G20 for the remainder of 2020 is not positive, according to Moody’s Investors Service.

Advanced economies within the G20 group are expected to contract 5.8 per cent this year and even a gradual recovery in 2021 is not expected to revive their GDP to pre-pandemic levels, Moody’s said in April.

Emerging economies within the G20 fold, with the exception of China, are expected to contract by 3.5 per cent from a growth forecast of 3.2 per cent prior to the outbreak, according to the rating agency.

While world trade has been already slowing down before the onset of the Covid-19 pandemic, due to trade tensions, the economic and social disruptions brought by outbreak are resulting in a dramatic decline in trade, the United Nations Conference on trade and Development (UNCTAD) said on Thursday.

The value of international trade in goods has declined about 5 per cent in the first three months of the year and is expected to fall a further by 27 per cent in the second quarter.

"No region has been spared from the decline," UNCTAD said.

East Asia and the Pacific regions appear to have fared better than other regions, with trade declines for these regions in the single digits both in the first quarter of 2020 and in April.

Still UNCTAD said "preliminary, data for April suggest a sharp downturn in all other regions with declines of up to 40 percent for countries in South Asia and Middle East regions."

Purchasing Manager Indices (PMIs), also signal further deterioration of international trade in the second quarter.

"While PMIs tracking international trade indicate that the pace of contraction has slowed in May, they have remained well below the 50 points benchmark," UNCTAD said.

"International trade is likely to remain below the levels observed in 2019 in the second half of the year. The magnitude of which will be dependent upon not only additional economic disruptions brought by the Covid-19 pandemic but also on the type and extent of policies that countries will adopt to restart their economies."

UNCTAD expects international trade to decline about 20 per cent this year, similar to World Trade Organization estimates expects that put the dip between 13 and 32 per cent.