OECD raises growth forecasts on vaccine rollouts, U.S. stimulus

June 01, 2021: -On Monday, the global economic Outlook is developing as vaccine rollouts permit businesses to restart operations and as the U.S pumps trillions of dollars into the world’s largest economy, the OECD said, nudging its forecasts higher.

The global economy will grow 5.8% this year and 4.4% in the coming year, the Organisation for Economic Cooperation and Development said, increasing its estimates from 5.6% and 4.0% respectively in its last forecasts that came out in March.

The global economy came back to pre-pandemic activity levels but has not yet achieved the growth expected before the worldwide health crisis, the OECD said in its latest Economic Outlook publication.

“The world economy is navigating towards the recovery currently, with lots of frictions,” OECD chief economist Laurence Boone said in an editorial to the Outlook.

“The risk that sufficient after the pandemic growth is not achieved or widely shared is elevated,” she added.

While vaccination campaigns allowed advanced economies to reopen for business gradually, many emerging market economies were being held back by vaccination deployment and new COVID-19 outbreaks, the OECD added.

The OECD added that the central banks in advanced economies should keep financial conditions relaxed and tolerate inflation overshooting their targets.

Sizeable spare capacity in the global economy can help keep a sustained increase in inflation at bay even after the recent price pressures triggered by supply chain bottlenecks as economies reopen, it added.

While confident that central banks would not get spooked by temporary price raises, Boone said she was less sure about financial markets, where she saw a risk of higher market rates and volatility.

Governments should keep up income support for households and companies by the vaccination is widespread enough to protect the most exposed sectors, the OECD added.

Buoyed by a multi-trillion-dollar stimulus plan, the U.S. economy grew 6.9% this year, and the OECD said, up from a previous forecast of 6.5%. It is expected to expand 3.6% in 2022, from a 4.0% forecast in March.

The U.S. stimulus plan added 3-4 percentage points to U.S growth and 1% to global growth by bringing the U.S. economy back to pre-crisis levels by mid-2021.