The global economic outlook is improving as vaccine rollouts allow companies to resume operations and the United States pumping trillions of dollars into the world’s largest economy, the OECD said on Monday, pushing its forecasts up.
The world economy will grow 5.8% this year and 4.4% next year, the Organization for Economic Co-operation and Development said, increasing its estimates from 5.6% and 4.0% respectively in its latest forecasts, which were released in March.
The global economy has now returned to pre-pandemic activity but has not yet reached the growth expected before the global health crisis, the OECD said in its latest economic outlook publication.
“The world economy is currently heading towards recovery with a lot of friction,” said OECD chief economist Laurence Boone in an editorial on Outlook.
“The risk of insufficient post-pandemic growth or widespread growth is increased,” she added.
While vaccination campaigns allowed advanced economies to gradually reopen business, slow adoption of vaccination and new COVID-19 outbreaks slowed many emerging markets, according to the OECD.
The OECD said central banks in advanced economies should keep financial conditions relaxed and tolerate inflation exceeding their targets.
Significant spare capacity in the global economy would help contain a sustained rise in inflation despite recent price pressures triggered by supply chain bottlenecks as economies reopen, it said.
Boone is confident central banks won’t be scared by temporary price hikes, but said it is less sure about financial markets as it sees the risk of higher market rates and volatility.
Governments should keep household and business income support until vaccination is widespread enough to protect the most vulnerable sectors, the OECD said.
Fueled by a multi-trillion dollar stimulus plan, the US economy grew 6.9% this year, up from an earlier forecast of 6.5%, according to the OECD. It is expected to grow 3.6% in 2022, up from a forecast of 4.0% in March.
The US stimulus plan contributed 3-4 percentage points to US growth and 1% to global growth, bringing the US economy back to pre-crisis levels by mid-2021.