The OECD boosted its forecast for global growth this year to 5.6 percent, but says a lot will depend on the race between vaccines and emerging variants of COVID-19.
The OECD is feeling a whole lot better about the global economy’s prospects this year, but warns that prospects for sustainable growth “vary widely between countries” and sectors.
In its latest Economic Outlook (PDF) released on Tuesday, the Organisation for Economic Co-operation and Development (OECD) boosted its forecast for global economic growth this year to 5.6 percent – more than a full percentage point higher than its December estimate.
It also sees world output of goods and services reaching pre-pandemic levels by the middle of 2021.
The OECD credits the improved prospects to vaccine roll-outs and government stimulus – particularly in the United States, where President Joe Biden’s proposed $1.9 trillion virus relief aid package is within striking distance of winning final approval in Congress.
“The significant fiscal stimulus in the United States, along with faster vaccination, could boost US GDP [gross domestic product] growth by over 3 percentage points this year, with welcome demand spillovers in key trading partners,” said the OECD in its report.
But the report warns that “sizeable risks remain” including slow progress on vaccination drives and “new virus mutations resistant to existing vaccines” that could weigh on economies and lead to more job losses and business failures.
The OECD went to great lengths to underscore the pivotal role that vaccine roll-outs will play in the recovery of economies and livelihoods.
“Speeding up vaccine production and roll-out is the best economic policy available today to boost growth and job creation,” it said.
The organisation urged countries to prioritise the production and deployment of vaccines “throughout the world” and called on richer nations to not be stingy with help for lower-income countries.
“The resources required to provide vaccines to lower-income countries are small compared with the gains from a stronger and faster global economic recovery,” said the OECD.
It also cautioned governments against withdrawing fiscal stimulus measures too soon.
In recent weeks, global stock markets have seen sharp selloffs prompted by fears that rising inflation could prompt central banks to hike borrowing costs.
In the US, Federal Reserve Chairman Jerome Powell has repeatedly sought to calm those fears by reiterating the Fed’s position that it is willing to tolerate a period of higher inflation if that’s what it takes to nurse the labour market back to health.
The OECD also weighed in on the inflation question on Tuesday. It noted that that though cost pressures have begun to surface in commodity markets as economies reopen and demand revives, leading to temporary supply disruptions, “underlying inflation remains mild, held back by spare capacity around the world.”
Long-festering inequalities both within and between nations exacerbated the COVID-19 pandemic, and have worsened because of it.
To address these issues, the OECD called for “enhanced structural” reforms in all nations “to raise opportunities, improve economic dynamism, and foster a strong, sustainable and inclusive recovery”.