The Organization for Economic Co-operation and Development (OECD) says that a U.S. recovery will "turbocharge" the global economy this year.
The Paris-based organization says in its latest forecast that U.S. President Joe Biden’s stimulus package will help power a faster-than-expected global economic rebound. However, it expects Europe to lag the economic turnaround as the continent struggles to distribute COVID-19 vaccines.
The OECD forecasts that global economic output will rise above pre-pandemic levels by mid-2021 after major economies showed greater resilience at the end of 2020, and as evidence of vaccine efficacy grows and governments add extra demand stimulus.
The OECD raised its world growth forecast for 2021 to 5.6% from 4.2% previously and more than doubled its prediction for the U.S. economy to 6.5%. OECD models indicate that President Biden’s measures will raise output around 3% to 4% on average in the first full year of the package and add a full percentage point to world economic output.
The upward revisions show the enormous uncertainty surrounding the rebound from the worst economic slump in living memory. U.S. borrowing costs and oil prices have returned to pre-crisis levels in recent weeks, sending ripples across global markets.
As a consequence, rising inflation expectations are putting pressure on central banks as they seek to ensure a smooth recovery.
And, as the U.S. surges ahead with a 2021 growth rate closer to China’s 7.8% than the Eurozone’s 3.9%, the OECD expects positive spillovers for economies such as Canada and Mexico.
But Europe is on a more gradual path with ongoing government restrictions and total discretionary stimulus set to be mild.
The OECD forecasts for this year and next suggest that some European economies, including Italy, Spain and the U.K., won’t make up lost Gross Domestic Product until 2022. Separately, Eurozone GDP data earlier this week showed the 19-member region contracted 0.7% in the final three months of 2020.
