The west’s leading economic thinktank has sharply upgraded its forecasts for global growth this year as a result of successful vaccine programmes and fresh stimulus packages to combat Covid-19.
In an interim outlook, the Paris-based Organisation for Economic Co-operation and Development said it expected the world economy to expand by 5.6% this year – up from 4.2% three months ago – and to recover the ground lost since the start of the pandemic by the middle of the year.
The US will see the most improved performance of the leading developed nations, in part due to the planned $1.9tn (£1.4tn) of tax cuts and spending increases that form the centrepiece of Joe Biden’s economic recovery plan.
The 37-nation OECD said it expected the US – the world’s biggest economy – to grow by 6.5% in 2021, more than double the 3.2% it had pencilled in three months ago. The US stimulus package will have knock-on effects for other countries, raising the global growth rate by one percentage point.
The OECD said the success of Britain’s vaccine programme and the fresh support for jobs and businesses provided by Rishi Sunak in the budget meant it was revising up its forecast for UK growth from 4.2% to 5.1% this year, and from 4.1% to 4.7% in 2022.
Other OECD members – especially in Europe – need to speed up their vaccine programmes or risk falling behind in what has become an increasingly two-speed global recovery, the thinktank said.
Laurence Boone, the OECD chief economist, said: “The world economy is doing a bit better. Firms have adjusted and some countries have accelerated vaccinations and so are reopening their economies.
“I don’t want to sound overoptimistic because a lot of the predictions are based on the assumption that vaccination will accelerate and that the race between vaccines and the virus will be won by the vaccines.”
Boone said the UK had been “doing well” on the vaccine front, adding that the eurozone – where programmes have lagged well behind that in the UK – needed to speed up. “It’s taking too long.” she said.
Of the eurozone’s four biggest economies, two – France and Italy – have seen their growth forecasts for 2021 trimmed slightly, while Germany and Spain have seen their fortunes improve since the OECD’s December economic outlook. Growth in the 19-nation eurozone as a whole is now expected to be 3.9% this year, up from 3.6%.
The OECD said activity in the two biggest Asian economies – China and India – had already exceeded pre-crisis levels, with the US joining them by the second quarter of this year.
“Prospects for an eventual path out of the crisis have improved, with encouraging news about progress in vaccine production and deployment and a faster-than-expected global rebound in the latter half of 2020, but there are signs of increasing divergence in activity developments across sectors and economies,” the interim outlook said.
“Strict containment measures will hold back growth in some countries and service sectors in the near term, while others will benefit from effective public health policies, faster vaccine deployment and strong policy support.”
The thinktank said despite the brighter outlook sizeable risks remained. Slow progress in vaccine programmes and the emergence of new virus mutations resistant to existing vaccines would result in a weaker recovery, larger job losses and more business failures.
Although cost pressures had begun to emerge, the main priorities were to save lives and protect jobs, the OECD said. It urged central banks to continue stimulating economies even if that meant a temporary pick up in inflation. A premature tightening of fiscal policy – tax increases or spending cuts – should be avoided.