Strengthening the recovery: The need for speed published by OECD (3/2021)
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 supress the virus.
• Global GDP growth is projected to be 5½ per cent in 2021 and 4% in 2022, with global output rising above the pre-pandemic level by mid-2021. 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.
• The significant fiscal stimulus in the United States, along with faster vaccination, could boost US GDP growth by over 3 percentage points this year, with welcome demand spillovers in key trading partners.
• There are increasing signs of divergence across countries and sectors. 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.
• Sizeable risks remain. Faster progress in vaccine deployment in all countries would enable restrictions to be lifted more quickly and enhance confidence and spending. Slow progress in vaccine rollout and the emergence of new virus mutations resistant to existing vaccines would result in a weaker recovery, larger job losses and more business failures.
• Cost pressures have begun to emerge in commodity markets due to the resurgence of demand and temporary supply disruptions, but underlying inflation remains mild, held back by spare capacity around the world.
• The top policy priority is to ensure that all resources necessary are used to produce and fully deploy vaccinations as quickly as possible throughout the world, to save lives, preserve incomes and limit the adverse impact of containment measures on well-being. The resources required to provide vaccines to lower-income countries are small compared with the gains from a stronger and faster global economic recovery.
• Fiscal policy support should be contingent on the state of the economy and the pace of vaccinations, with new policy measures implemented promptly and fully if required. A premature tightening of fiscal policy must be avoided.
• The current very accommodative monetary policy stance should be maintained, and allow temporary overshooting of headline inflation provided underlying price pressures remain well contained, with macroprudential policies deployed where necessary to ensure financial stability.
• Continued income support for households and companies is warranted until vaccination allows a significant easing of restraints on face-to-face activities, but should be refocused to support people and help companies with grants and equity rather than debt.
• Enhanced structural reforms are required in all countries to raise opportunities, improve economic dynamism, and foster a strong, sustainable and inclusive recovery.
• The sequencing and packaging of reforms is important to enhance their collective benefit and support near-term demand.
• International policy co-ordination is essential to increase the gains from national policy actions to tackle the pandemic, enhance resilience and ensure a strong and inclusive recovery.
