The Organisation for Economic Co-operation and Development’s (OECD) key objectives include supporting prosperity, equality, and opportunity for all. Their policies are based on a strong awareness of economic and social trends.
As the world matures through the stages of the pandemic, the OECD is ideally positioned to quantify expectations for economic growth. This week we received a preliminary insight to their updated semi-annual economic outlook report.
Their latest report is packed full of detail, but one thing stands out clearly – things look much brighter!
Within the detail of the report the OECD show:
- Positive economic growth revisions.
- Several factors influencing positive change.
- They draw out the fact the nature of the recovery is uneven.
- And finally, give recommendations for maintaining positive momentum.
OECD Economic Growth Revisions:
World economic growth (GDP) is expected to come in at 5.8% for 2021. This reflects a positive revision from the December 2020 estimate of 4.2%. For 2022, growth is forecast at 4.4%, up from expectations of 3.7% in December 2020.
Table 1.0 below breaks down the growth outlook by region and by country giving greater granularity to the headline world growth rate. It also allows for comparisons against the pre pandemic average growth rate to help put what lies ahead into perspective.
Some key observations are as follows:
- Growth across the Developed nations are more akin to those of fast-growing developing nations such as China or India.
- The US economy is trouncing Europe and Japan in terms of growth.
- Despite the Pandemic, China recorded growth in 2020 and is bouncing back strongly.
- Progression of vaccination rates is encouraging, but more work is required within emerging markets.
Table 1.0: OECD Economic Growth Forecasts.
Source: OECD, June 2021
Underlying the more optimistic tone from the OECD cite is a plethora of positive factors influencing the economic bounce back. They include:
- Maintenance of fiscal support and central bank monetary policy support.
- Rapid improvement in vaccination rates and associated easing of lockdown restrictions.
- Improvement in business confidence, with economic activity following closely behind.
Starting with Policy, total fiscal and monetary support has been a key contributor in the recovery of global GDP. This is an enormous amount of stimulus, and central bankers continue to be vigilant and ready to act if necessary. This is apparent from recent comments.
Andrew Bailey, Governor of The Bank of England: The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. – 6th May 2021
Jerome Powell, Chairman of the US Federal Reserve: The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. – 28th April 2021
Christine Lagarde, President of the European Central Bank: The Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. – 22nd April 2021
Source: BoE, ECB, Federal Reserve main sites, June 2021
Of course, the positive aspects now under discussion by the OECD would not have been possible without the vaccines that have been developed.
We can see just how positively vaccination rates have evolved, with developed and richer nations leading the way. Regrettably, many developing nations are lagging and the OECD have become increasingly vocal in requesting this shortcoming needs to be addressed.
Chart 1.2 – Share of People who have received at least one dose of Covid-19 Vaccine:
Source: Our World in Data, June 2021
The success of the vaccine programmes has undoubtedly contributed massively to easing of lockdown restrictions, albeit unevenly.
Chart 1.3 demonstrates this with most developed countries on a downward trajectory, whereas developing nations continue to grapple with the virus given the lack of vaccination supply.
Chart 1.3: Stringency Index*
* This is a composite measure based on nine response indicators including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest).
Source: Our World in Data, June 2021
All in all, the positive contribution from vaccination programmes is paying off. The extent to which business confidence has recovered is evident from surveys such as the purchasing managers shown in the table below, all with a reading above 50 demonstrating expansion.
Source: Bloomberg, 4th June 2021
In chart 1.4 we can also see how consumer activity is building.
Chart 1.4- Google retail and recreation community mobility trend data:
Source: OECD, June 2021
The uneven nature is also evident for a country like India where the virus is still not well controlled. Elsewhere, and speaking more generally, activity is on a strong upward trend. One thing is sure, consumers will play a big part to play with pent up demand being unleashed everywhere.
Finally, we looked closely at several OECD recommendations designed to support growth and limit inequality. We highlight a few of the crucial ones:
- Removal of barriers and increased cooperation to distribute vaccines worldwide. This will save lives, preserve incomes, and limit the adverse impact of containment measures.
- Provide support for workers in the hardest hit sectors (leisure, hospitality etc) via grants and equity rather than debt.
- Invest in people, improving training schemes to support displaced workers return to the jobs market.
- Monetary policy support should be maintained in developed economies and temporary overshoots in inflation should be allowed, so long as underlying price pressures are contained.
The OECD report indicates improving signs of optimism.
The OECD cite reasons for believing in better global economic growth, supported by several positive data trends.
The OECD believe economic recovery is strong but uneven. They are calling for greater cooperation globally in the way vaccines are distributed.
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