The brightening outlook for the global economy will give governments leeway to switch from blanket emergency support to more targeted measures, with a focus on investing, the OECD has said.
The Paris-based organisation said global output would rise 5.8 per cent this year, a significant upgrade from the forecast of 4.2 per cent made in December. Growth of 4-4 per cent the following year would bring most of the world back to pre-pandemic levels of activity, it added.
However, the OECD also warned that the recovery would be uneven and living standards in many developed economies will still fall well short of the levels expected before the pandemic.
The new forecasts suggest that in the US, thanks to its fiscal stimulus and Covid-19 vaccination programmes, economic output at the end of 2022 would be slightly higher than it had projected in November 2019.
The same is true of China and, to a lesser extent, Germany. But output in many European countries, especially those reliant on tourism, will be well below pre-pandemic levels. The shortfall will be even bigger in emerging markets: output in India will be almost 10 per cent below the November 2019 projection.
In the longer term, the damage to the productive capacity of the economy could be worst among G7 countries particularly in the UK, where the scarring effects of the pandemic will be compounded by Brexit, the OECD said.
“As countries transition towards better prospects, it would be dangerous to believe that governments are already doing enough to propel growth to a higher and better path,” said Laurence Boone, OECD chief economist.
The support that many countries had provided for businesses and households had helped protect people’s income and limit damage to the supply side of economies, she added.