Global economic growth has been more vigorous than anticipated a year ago, but the recovery remains uneven, exposing advanced and emerging markets to a range of risks, according to the latest “Interim Economic Outlook” from the Organization for Economic Co-operation and Development (OECD).
The OECD said extraordinary support from governments and central banks helped avoid the worst economic impact when the Covid-19 pandemic hit. With the vaccine roll-out continuing and a gradual resumption of economic activity underway, the OECD now projects strong global growth of 5.7 percent this year and 4.5 percent in 2022, similar to its May outlook of 5.8 percent and 4.4 percent, respectively.
However, OECD stressed that countries are emerging from the crisis with different challenges, often reflecting their pre-Covid strengths and weaknesses, and their policy approaches during the pandemic. Even in the countries where output or employment have recovered to their pre-pandemic levels, the recovery is incomplete, OECD said, with jobs and incomes still short of the levels expected before the pandemic.
Large disparities in vaccination rates between countries are adding to the unevenness of the recovery, while renewed outbreaks of the virus are forcing some countries to restrict activities, resulting in bottlenecks and adding to supply shortages.
The report notes the marked variations in the outlook for inflation, which has risen sharply in the United States and some emerging market economies, but remains relatively low in many other advanced economies, particularly in the Euro Area.
A rapid increase in demand as economies reopen has put upward pressure on prices in key commodities such as oil and metals, as well as food, which has a stronger effect on inflation in emerging markets. The disruption to supply chains caused by the pandemic has added to cost pressures. At the same time, shipping costs have increased sharply.
But the outlook forecast that these inflationary pressures should eventually fade. Consumer price inflation in the G20 countries is projected to peak toward the end of 2021 and slow throughout 2022. Wage growth remains broadly moderate and medium-term inflation expectations are still contained.
The report warned that to keep the recovery on track, stronger international efforts are needed to provide low-income countries with the resources to vaccinate their populations, both for their own and for global benefits.
“Policies have been efficient in buffering the shock and ensuring a strong recovery,” OECD chief economist Laurence Boone said. “Planning for more efficient public finances, shifted toward investment in physical and human capital is necessary and will help monetary policy to normalize smoothly once the recovery is firmly established.”
The report said government fiscal policies should remain flexible and avoid a premature withdrawal of support, “operating within credible and transparent medium-term fiscal frameworks that provide space for stronger public infrastructure investment.”
“The world is experiencing a strong recovery thanks to decisive action taken by governments and central banks at the height of the crisis,” OECD secretary-general Mathias Cormann said. “But as we have seen with vaccine distribution, progress is uneven. Ensuring the recovery is sustained and widespread requires action on a number of fronts, from effective vaccination programs across all countries to concerted public investment strategies to build for the future.”