Global GDP forecast raised on vaccines, US stimulus

PARIS: The Organisation for Economic Co-operation and Development (OECD) sharply raised its 2021 global growth forecast on Tuesday (Wednesday in Manila) as the deployment of coronavirus vaccines and a huge US stimulus program greatly improved economic prospects.

The Paris-based OECD says it now expects global gross domestic product (GDP) to grow by 5.6 percent this year, a 1.4-percentage-point increase from its December forecast of 4.2 percent.

It also projects economic growth to hit 4 percent in 2022, higher than its previous outlook of 3.7 percent.

“Global economic prospects have improved markedly in recent months, helped by the gradual deployment of effective vaccines, announcements of additional fiscal support in some countries, and signs that economies are coping better with measures to suppress the virus,” the OECD said in a report.

The world recovery will be largely carried by the United States, thanks to President Joe Biden’s $1.9-trillion stimulus program, Laurence Boone, chief economist of the OECD, told Agence France-Presse.

The OECD now sees the US economy climbing by 6.5 percent this year, up 3.3 percentage points from its previous forecast.

Boone said the US recovery accounted for 1 percentage point of the global growth revision.

‘Significant risks’

The OECD also said global output could rise above the pre-pandemic level in mid-2021.
It noted, however, increasing signs of divergence between countries as some of them are faster to roll out vaccines while others employ containment measures.

“Despite the improved global outlook, output and incomes in many countries will remain below the level expected prior to the pandemic at the end of 2022,” said the organization, which advises advanced economies.

For the moment, only China, India and Turkey have surpassed pre-pandemic levels of economic output.

The OECD said the “top policy priority” is to deploy vaccines as quickly as possible throughout the world, save lives and speed up economic recovery.

“There are huge and significant risks to our economic projections, most notably the pace of vaccination,” Boone told AFP.

“What we know [is] if the faster countries vaccinate, the quicker they can reopen their economy,” she said, adding that Europe should speed up its vaccination efforts.

The UK, which also rolled out vaccines quickly, got a 0.9-percentage-point increase to 5.1 percent. This is higher than its own forecast, which was lowered last week.

The eurozone, where vaccination campaigns have been slower, received only a 0.3-percentage-point bump to 3.9 percent, as recoveries in both Italy and France were revised lower.

Inflation in check

The OECD also urged advanced nations to step up their support to efforts to aid poorer countries obtain vaccines and get them into arms.

“The resources required to provide vaccines to lower-income countries are small compared with the gains from a stronger and faster global economic recovery,” the OECD said.

The forecast for China was also revised lower, by 0.2 percentage point, to 7.8 percent.

The OECD said fiscal and monetary policy should remain supportive of recoveries.

Concerning inflation, the threat of which has caused markets to swoon in recent weeks, the OECD said underlying price pressures generally remained mild and were being held in check by ample spare capacity around the world.