Organisation for Economic Cooperation and Development upbeat with 5.8% global growth in 2021

This year, the pandemic-stricken world economy will expand by 5.8 per cent, up from a previous estimate of 5.6 per cent, the Paris-based OECD forecast.

The Organisation for Economic Cooperation and Development (OECD) on Monday projected a brighter outlook for the global economy on the back of vaccine rollouts and the infusion of trillions of dollars in propping up economies to enable businesses to resume operations.

This year, the pandemic-stricken world economy will expand by 5.8 per cent, up from a previous estimate of 5.6 per cent, the Paris-based OECD forecast.

It, however, warned that too many headwinds persist as not enough Covid vaccines are reaching emerging economies, making the world vulnerable to variants.

This follows a massive global recession last year that was caused by lockdowns and travel curbs imposed by governments to slow the spread of Covid-19, said the 38-nation group, whose members account for 60 per cent of global gross domestic product.

“The world economy is currently navigating towards the recovery, with lots of frictions,” OECD chief economist Laurence Boone said in an editorial to the Outlook. “The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated,” she added.

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

“Central banks in advanced economies should keep financial conditions relaxed and tolerate inflation overshooting their targets,” said the report.

“It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” Boone said.

The recovery is uneven so far, with the United States and China returning to pre-pandemic levels and forecast to have much stronger growth than other major economies such as Japan and Germany.

Applauding the rapid reaction of governments to prop up the economy, Boone said: “Never in a crisis has policy support — be it health, with the record speed of vaccine development, monetary, fiscal or financial — been so swift and effective.”

“Yet, too many headwinds persist.”

Boone said it was “very disturbing” that not enough vaccines were reaching emerging and low-income economies.

“This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies,” she said.

The warning comes as the emergence of more contagious coronavirus variants have raised concerns around the world, with India battling a strain that has caused a surge in cases and deaths.

“As long as the vast majority of the global population is not vaccinated, all of us remain vulnerable to the emergence of new variants,” Boone said.

She warned that new lockdowns would hurt confidence while companies, which are saddled with more debt than before the pandemic, could go bankrupt.

Another risk to global GDP is how financial markets could react to concerns about inflation, the OECD said.

Stressing that “vigilance is needed”, Boone said what is of most concern is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher.

issacjohn@khaleejtimes.com