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Wednesday, 2 June 2021

It’s good news / bad news from the OECD

The OECD is out with its latest global economic outlook — and there’s good news and bad news. The good news is that the world’s most advanced economies look set to stage a stronger-than-anticipated recovery, returning to pre-covid levels by next year. The bad news? Most everyone else is going to struggle.

The good: The OECD’s forecasts now see the global economy growing by 5.8% in 2021, a serious upgrade from the 4.2% it had predicted just six months ago in December. This could be followed by a 4.4% growth in 2022, which according to the OECD would return the global economy to pre-pandemic levels. The Paris-based organization cited the vaccination rollout in advanced economies and an enormous fiscal stimulus package in the US as being behind the rebound

There's particular cause to celebrate if you’re American or Chinese: The twin booster of vaccines and stimulus will push the US economy to surge 6.9% this year, helping to return per capita income to pre-pandemic levels by 2H2021, a surprisingly swift recovery considering the historically unprecedented unemployment shock and Great Depression-esque food lines witnessed just a year ago. This will put the US economy on a path to return to its pre-covid size by late 2022. On the other side of the world, China has been experiencing a rapid recovery after clamping down early on the virus. The OECD expects its economy to grow 8.5% and 5.8% during 2021 and 2022 respectively.

Europe will take a bit longer to pick itself up: The OECD projects much of Europe will take nearly three years to recover, with output likely to rise by 4.3% in 2021 and 4.4% in 2022. But on a positive note, ramping up vaccination programs has allowed European governments to start lifting containment restrictions on activities in recent weeks, accelerating the bloc’s “slow” recovery plan. The OECD also noted that risks posed by the high level of debt held by small and medium-sized companies, especially in European countries, could be mitigated by turning some pandemic-related financing into grants, with conditional repayments based on performance and regular assessments of viability.

The bad: The recovery will be “significant but uneven” as it hinges on the pace of vaccination programs globally, the OECD said, with the main downside risk to its upbeat forecasts being a failure to deliver covid vaccines to emerging and poor countries. IMF chief Kristalina Georgieva also recently raised concerns that a “two-track pandemic is causing a two-track economic recovery —with negative consequences for all countries,” with vaccine inequity resulting in the revival of rich countries and muted recovery of developing economies. India for example, which is currently suffering from a spike in cases, is expected to see a return to pre-pandemic growth levels at a slower pace, with output projected at 10% lower than the November 2019 projection.

Closing the vaccine equity gap offers a possible solution: The WHO and other organizations have urged countries to take part in the International Monetary Fund's USD 50 bn plan, which aims to vaccinate at least 40% of the world's population by the end of 2021 and the remaining 60% by 1H2022. The World Health Organization has also recently reiterated the need to waive intellectual property rights on covid vaccines, which would boost global supply and secure equitable access for poorer nations. While the US supports the waiver, European countries, Canada and Switzerland still oppose it.

And a focus on health and education will help accelerate the bounceback: “It would be dangerous to believe that governments are already doing enough to propel growth to a higher and better path,” OECD chief economist Laurence Boone told the Financial Times. Stimulus programs led by many governments have helped maintain citizens’ income levels, but the pandemic has highlighted the need to boost health and education systems, as well as digital and green transformation. Support should become more targeted and “the focus should be on investment,” Boone said.

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