The global economy will return to pre-pandemic levels by 2022, the OECD says

A clear view of the global economy will allow governments to move from general emergency assistance to more specific measures aimed at channeling investment, the OECD said.

The Paris-based organization said global production will rise by 5.8 per cent this year, up from a 4.2 per cent forecast in December. He added that a 4.4 per cent increase next year would return most of the world to pre-pandemic activity levels.

However, the OECD has warned that the recovery will be inadequate and that in many developed economies the standard of living will still fall far short of the levels expected before the pandemic.

New forecasts suggest that the US, thanks to its fiscal stimulus and Covid-19 vaccination programs, would see slightly higher economic output by the end of 2022 than expected in November 2019.

The same goes for China and, to a lesser extent, Germany. But in many European countries, especially those based on tourism, the pandemic will be much lower than previous levels. The shortfall will be even greater in emerging markets: Indian production will be almost 10% below the forecast for November 2019.

In the long run, damage to the productive capacity of the economy could be serious among G7 countries, especially in the UK, where the scarring effects of the pandemic will increase along with Brexit, according to the OECD.

“As countries transition to better forecasts, it would be dangerous to believe that governments are doing enough to drive growth on a higher and better path,” said OECD chief economist Laurence Boone.

He added that aid from many countries to businesses and homes has helped protect people’s incomes and limit the supply damage to their economies.

But the crisis underscored the need to improve health and education systems and fund digital transformation and climate transition. As some sectors reopen, while others are still limited, support should be targeted and “the focus should be on investment,” Boon said.

The biggest risk of the OECD’s strong predictions is that the supply of Covid vaccines will not reach emerging countries and low-income countries.

“The global economic and social cost of maintaining closed borders reduces the costs of making vaccines, testing, and health supplies available,” Boon said.

Another concern was the high level of debt owed to small and medium-sized enterprises, especially in European countries, which were mainly channeled through aid loans to companies instead of subsidies.

The OECD said one approach could be to convert some pandemic-related loans into grants, which will condition repayment performance and periodic feasibility assessments.

Boone’s constant talk about the dangers of policy spreads – especially in the US – fed him constantly high inflation.

The OECD has acknowledged that prices could rise in the short term due to congestion and bottlenecks in ports in some sectors that were opening up rapidly.

However, he took the view that wages in labor markets would remain under control, specifying that by the end of 2022 the OECD country would be below the pre-crisis rate in the middle country.