OECD lowers world GDP forecast; terms vaccination key

PARIS: The OECD lowered the world’s economic growth outlook for 2021 on Wednesday and called for a swifter rollout of Covid vaccines, fearing the emergence of “breeding grounds” for deadlier strains.

The global economy is now expected to expand by 5.6 per cent this year, down from an earlier forecast of 5.7 per cent, the OECD said in its updated economic outlook released as the Omicron variant has sparked concerns about its impact on the recovery.

“The global recovery continues to progress, but has lost momentum and is becoming increasingly imbalanced,” said the Paris-based Organisation for Economic Co-operation and Development.

While the OECD said it was “cautiously optimistic” about the recovery, it warned that health, high inflation, supply chain bottlenecks, and potential policy missteps are “all key concerns”.

“The top policy priority remains the need to ensure that vaccines are produced and deployed as quickly as possible throughout the world, including booster doses,” the OECD said.

“The recovery will remain precarious and uncertain in all countries until this is achieved,” it said.

In the “more benign scenarios”, outbreaks could continue to prompt restrictions on people’s movements, which could have long-lasting consequences on labour markets, production capacity and prices.

“The harshest scenario is that pockets of low vaccination end up as breeding grounds for deadlier strains of the virus, which go on to damage lives and livelihoods,” OECD chief economist Laurence Boone warned in the report.

While the outlook was lower this year, the OECD’s growth forecast for 2022 remains unchanged at 4.5 per cent.

The report does not take into account the possible impact of the Omicron variant.

Analysts at Oxford Economics say the new strain could shave 0.25 percentage points off global growth next year if it causes mild effects, but it would cost two percentage points if it is more dangerous and a large part of the global population was forced into lockdowns.

The strain has been spotted around the world since South African experts discovered its existence, prompting new travel restrictions.

The World Health Organization believes the variant’s high number of mutations might make it more transmissible or resistant to vaccines.

Addressing other key concerns for the world economy, the OECD said it expected inflation to peak at the turn of the year before receding gradually in the 38-nation OECD, which includes leading developed and emerging countries.

Soaring inflation has caused commotion in the markets as investors fear that central banks will raise interest rates sooner than expected to tame runaway prices.

The OECD urged monetary policymakers to “communicate clearly” about how far they will tolerate inflation exceeding their targets.

Supply-side constraints and shortages, meanwhile, “should wane gradually through 2022/23” as demand normalises, production capacity grows and more people return to the labour force.

The OECD also highlighted “marked differences” in the recovery of countries around the world.

“Parts of the global economy are rebounding quickly, but others are at risk of being left behind, particularly lower-income countries where vaccination rates are low, and firms and employees in contact-intensive sectors where demand has yet to recover fully,” it said.

In its forecast among individual regions, the OECD said the US economy should grow by 5.6 per cent this year, lower than its previous outlook which had already been cut for the world’s biggest economy.

The Eurozone’s growth outlook was slightly lowered to 5.2 per cent.

For China, the world’s second-biggest economy, the outlook was lowered to 8.1 per cent this year and 5.1 per cent in 2022.

The debt crisis at property giant Evergrande has raised concerns about its potential impact on the Chinese economy.