PARIS: The OECD raised its 2021 global GDP growth forecast yesterday, but warned that "too many headwinds persist” as not enough COVID vaccines are reaching emerging economies and markets worry about inflation. The world economy will expand by 5.8 percent this year, the highest since 1973 and up from a previous estimate of 5.6 percent, the Paris-based Organization for Economic Co-operation and Development said in a report.
Most economies should return to their 2019, pre-pandemic levels next year, the OECD said. 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. "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,” OECD chief Laurence Boone said in the report.
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. While the US and South Korea are back to their pre-pandemic income levels, it could take an additional year for much of Europe and three to five years for Mexico and South Africa to catch up. The 38-nation organization, whose members account for 60 percent of global gross domestic product, applauded the rapid reaction of governments to prop up the economy. "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,” Boone said. "Yet, too many headwinds persist,” she warned.
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 has 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.
‘Vigilance is needed’
New lockdowns would hurt confidence while companies, which are saddled with more debt than before the pandemic, could go bankrupt, Boone said. The OECD’s outgoing secretary general, Angel Gurria, called for a multilateral approach to put an end to the pandemic. "Effective vaccination programs in many countries has meant today’s Economic Outlook is more promising than at any time since the start of this devastating pandemic,” he said.
"But for millions around the world getting a jab still remains a distant prospect. We urgently need to step up the production and equitable distribution of vaccines,” said Gurria, who will be succeeded by Australian finance minister Mathias Cormann on Tuesday after 15 years on the job. Gurria expressed confidence, meanwhile, that negotiations to establish a global minimum corporate tax - championed by the United States - could be wrapped up by a G20 meeting in October.
Another risk to global GDP is how financial markets could react to concerns about inflation, the OECD said. Analysts have voiced concerns that rising inflation will prompt central banks to withdraw their easy-money policies to prevent the economy from overheating. The release of pent-up consumer demand and disruptions to supply chains due to the pandemic could fuel inflation, but the price increases will likely be temporary, the OECD said.
"What is of most concern, in our view, is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher,” Boone said. "Vigilance is needed.” — AFP