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OECD Chief Warns Against Shortening Supply Chains

While it’s unclear when a real economic recovery will happen, it is imperative to get the novel coronavirus under control as soon as possible, as doing so is inextricably interlinked with a commercial revival.

That was the key point of Angel Gurria, secretary-general of the Organization for Economic Cooperation & Development (OECD), who spoke Wednesday in a session on “The Global Economy: Tracing the Course of the Economic Shock” during the Financial Times’ Global Boardroom digital conference.

“We should throw the rule book out and deal with the human and health consequences,” Gurria said. “The quicker we do this, the easier and less expensive this will be.”

Gurria said he was “not confident of the idea that we will have a V-shaped recovery, I think it will be more like a ‘U’ and the idea is to shorten the lower part of the ‘U’ as much as possible.”

Governments and central banks can inject liquidity and what they’re doing is financing debt that needs to be repaid, he said. The extra debt governments are taking on to tackle the crisis “will come back to haunt us,” he added, but is still warranted to aid the human suffering taking place.

He noted, for example, that there has been unprecedented support from government for the unemployed, including people not in the formal sector.

“Greater cooperation and collaboration [among countries ] can enhance the actions or means of any one country beyond its own outcomes,” Gurria said.

OECD will come out with an outlook for the second half of the year on June 10, but clearly “the economic outlook is bad and it could get worse,” Gurria said. “The second quarter, when the bulk of the crisis will be seen, is going to be unprecedented” in terms of statistics on how the coronavirus pandemic and subsequent economic fallout has impacted national economies.

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In addition to the unemployed, workers are suffering skills depreciation, and income and gender inequalities, he added.

The OECD estimates that every month of hard confinement reduced gross domestic product by 2 percent. In addition, the full interconnectedness of the global economy isn’t being taken into account, he noted. Its also important to remember that “reopening is not science, it’s more like an art.”

“Then there’s the issue of shortening the supply chains,” he said. “You have people that say ‘I’d like to have my supply a lot closer to me.’ That might not be the most efficient solution, it might not be the most cost-conscious solution. Clearly, what is warranted is diversification of the sources, rather than simply shortening the distances.”

In addition, Gurria said it’s important not to forget “the fundamental problems we had before the crisis,” such as climate change and biodiversity, so that societies don’t perpetuate suffering and damage of other sorts once the health crisis is over.