Strengthening world economy is leaving many regions behind

With the world economy in a recovery mode from the COVID-19 pandemic, many regions risk being left behind and is fueling more uncertainty. The Organization for Economic Cooperation and Development (OECD) warned of gaping differences.

The OECD believes the global economy will grow by 5.8% this year, a sharp upwards revision from the December 2020 Economic Outlook projection of 4.2% for 2021. The COVID-19 vaccines rollout in many of the advanced economies has been driving the improvement, as has the massive fiscal stimulus by the United States. World GDP growth is expected to be 4.4% next year but global income will still be some USD 3 trillion less by end 2022 than was expected before the crisis hit.

Laurence Boone, OECD Chief Economist, told Bloomberg that there is some relief with the economic outlook brightening, but with some discomfort that is doing so in a very uneven way. “The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated.” The OECD praised governments for exceptionally swift and effective policy support that is now fuelling a rebound in trade, manufacturing and consumer spending.

It pointed out that differences in the strength of economic recovery across countries are being driven by the extent of government support to vulnerable workers and businesses, by a country’s dependency on particular sectors such as tourism as well as by public health and vaccination policies. Trade is also playing a significant role. Consumers have been spending less on services and more on goods since the pandemic began. The pick-up in merchandise trade has benefitted countries heavily involved in supply chains, particularly pharmaceuticals, medical supplies and IT material.

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The OCED acknowledged the fact that COVID-19 pandemic risks causing long-term damage to job prospects and living standards for many people. It suggested for governments to use all resources necessary to speed up vaccination throughout the world. They should maintain targeted income support for people and firms until economies can fully reopen and invest in digital and green transformation.

However, the Organization for Economic Cooperation and Development warned that the problem of diverging fortunes could worsen further because of a failure to get enough vaccines and support to emerging and low-income economies, which already have less capacity to absorb shocks and could face sovereign funding issues. Without inoculations in all countries, the OECD said new variants and renewed lockdowns could hit confidence and plunge activity back into a disruptive stop-go pattern.