What a difference three months can make.
The Organisation for Economic Co-operation and Development (OECD) has more than doubled its gross domestic product (GDP) growth forecast for the US economy since making its last projections in December. At that time, the OECD said it expected real GDP growth of 3.2% in the US in 2021, but now it expects the US economy to grow 6.5% this year.
If its current predictions are accurate, it would be only the second time since 1966 that US GDP growth exceeded 6%, following behind 1984 when GDP growth was a red-hot 7.2%.
The OECD also upgraded its global growth forecast for 2021 to 5.6% from 4.2% in December. But the biggest upgrade on a national basis was made to India’s GDP forecast, which the OECD now pegs at a blistering 12.6%, up from its forecast of 7.9% three months ago.
“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 suppress the virus,” the OECD said in its interim economic outlook report.
The report said that while prospects for a way out of the COVID-19 pandemic have improved due to increased vaccine production and deployment, “there are signs of increasing divergence in activity developments across sectors and economies.” It added that expectations for a stronger recovery are also reflected in financial and commodity markets, with US long-term bond yields and oil prices returning to their pre-pandemic levels.
“Speed is of the essence,” OECD Secretary-General Angel Gurría said in a statement. “There is no room for complacency. Vaccines must be deployed faster and globally. This will require better international cooperation and coordination than we have seen up to now. It is only by doing so that we can focus our attention on building forward better and laying the foundations for a prosperous and lasting recovery for all.”
The report also said the improved prospects of a global recovery have led to financial market expectations of higher inflation, although the OECD said underlying price pressures generally remain mild in advanced economies. Public debt levels have risen sharply almost everywhere, the report added, but debt-servicing costs in most OECD economies continue to benefit from very low interest rates.
Despite the more optimistic economic outlook, the report warned that a long-term shift to remote working, reductions in business travel, and the increasing digital delivery of services, including e-commerce, could change the mix of jobs available and the location of many workplaces.
“Such potential shifts would accentuate longstanding pre-pandemic challenges from an extended period of weak growth, widening inequalities in outcomes, and access to opportunities,” according to the report.
The report also calls for ramping up vaccinations, for more targeted fiscal stimulus to boost both output and confidence, and to maintain income support for people and businesses hard hit by the pandemic.