OECD Economic Outlook, Interim Report September 2021: Keeping the Recovery on Track
- Economic growth has picked up this year, helped by strong policy support, the deployment of effective vaccines, and the resumption of many economic activities.
- Global GDP is projected to grow by 5.7% in 2021 and 4.5% in 2022. A strong rebound in Europe, the likelihood of additional fiscal support in the United States next year, and lower household savings will boost growth prospects in the advanced economies.
- Global GDP has now surpassed its pre-pandemic level, but output and employment gaps remain in many countries, particularly in emerging-market and developing economies where vaccination rates are low.
- The economic impact of the Delta variant has so far been relatively mild in countries with high vaccination rates but has lowered near-term momentum elsewhere and added to pressures on global supply chains and costs.
- Inflation has risen sharply in the United States, Canada, the United Kingdom, and some emerging-market economies, but remains relatively low in many other advanced economies, particularly in Europe and Asia.
- Higher commodity prices and global shipping costs are currently adding around 1½ percentage points to annual G20 consumer price inflation, accounting for most of the inflation upturn over the past year.
- G20 consumer price inflation is projected to moderate from 4½ percent at the end of 2021 to around 3½ percent by the end of 2022, remaining above the rates seen before the pandemic. Supply pressures should fade gradually, wage growth remains moderate and inflation expectations are still anchored, but near-term risks are on the upside.
- Sizeable uncertainty remains. Faster progress in vaccine deployment or a sharper rundown of household savings would enhance demand and lower unemployment but also potentially push up near-term inflationary pressures. Slow progress in vaccine rollout and the continued spread of new virus mutations would result in a weaker recovery and larger job losses.
- The difficult policy choices faced by some emerging-market economies with high debt and rising inflation are also potential downside risks.
- Governments need to ensure that all resources necessary are used to deploy vaccinations as quickly as possible throughout the world to save lives, preserve incomes and bring the virus under control. Stronger international efforts are needed to provide low-income countries with the resources needed to vaccinate their populations for their own and global benefits.
- Macroeconomic policy support remains necessary whilst the near-term outlook is still uncertain and labor markets have not yet recovered, with the mix of policies contingent on economic developments in each country.
- Accommodative monetary policy should be maintained, but clear guidance is needed about the horizon and extent to which any inflation overshooting will be tolerated, and the planned timing and sequencing of eventual moves towards monetary policy normalization.
- Fiscal policies should remain flexible and contingent on the state of the economy. A premature and abrupt withdrawal of policy support should be avoided whilst the near-term outlook is still uncertain.
- Credible fiscal frameworks that provide clear guidance about the medium-term path towards debt sustainability, and likely policy changes along that path, would help to maintain confidence and enhance the transparency of budgetary choices.
- Stronger public investment and enhanced structural reforms are needed to boost resilience and improve the prospects for sustainable and equitable growth.