One of the most awaited economic reports of the first quarter of every year is the OECD (Organization for Economic Co-Operation and Development) economic outlook. The interim report released yesterday surprised the world positively – the OECD projects that the world economy will grow by 5.6% in 2021 and 4% in 2022.
The new projections are about 1% higher than the previous ones, sending a bullish signal across financial markets. Unexpectedly, the good news came as a sign of confidence – equities rallied in response.
Faster and Effective Vaccination Deployment Paid Off
One of the reasons cited for the more optimistic report is faster and effective vaccination deployment. Indeed, the start differed from country to country. While some countries organized the process faster (e.g., the United Kingdom, the United States, Israel), others faced supply problems but also logistical issues.
However, each day counts as governments around the world cope better with the infrastructure challenges. Every day a new solution is found for more capacities – even competitors in the pharma industry agreed to produce vaccines developed by their market rivals.
As a result, the race to full economic recovery is uneven. Whoever wins the vaccination rate will also win a bigger share of the worlds’ economy.
The report also mentions fiscal stimulus in advanced economies. Only in the United States, the report estimates that the GDP will be boosted by about 3% this year alone on the back of the stimulus.
Yet, even in this chapter, huge differences exist. The chart above shows the incredible discrepancy between the United States’ fiscal support and the ones in the Euro area or Japan. Only in the last three months (i.e., since December 2020), the fiscal support in the States dwarfs the one in Europe or Japan. Hence, it is normal to expect an economic recovery at different spills.
Still, some positives exist. For example, the spillover effects of a faster economic recovery in the United States are expected to be seen in its trading partners’ economic growth as well.
Another interesting aspect the report covers refers to the monetary policy. The OECD gives its vote of confidence to the current easy monetary policies and urges central banks to keep conditions in place. Moreover, it even suggests that inflation should be left overshooting, just like Janet Yellen, the U.S. Treasury Secretary, said this week too.
All in all, an optimistic report from the OECD. Will it revise its prognosis further in the next interim report? Everyone surely expects so.