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

According to the OECD, the bright outlook for the global economy will allow governments to shift from comprehensive emergency support to more targeted measures, with a focus on investment.

The Paris-based organization said that global output will increase by 5.8% this year, a sharp increase from the 4.2% forecast in December last year. It added that a 4.4% growth in the second year will restore most of the world to pre-pandemic activity levels.

However, the OECD also warned that the recovery will be uneven and that the living standards of many advanced economies will still be much lower than expected before the pandemic.

The new forecast shows that in the United States, due to its fiscal stimulus and the Covid-19 vaccination plan, economic output at the end of 2022 will be slightly higher than the November 2019 forecast.

The same is true in China, and so is Germany. But the output of many European countries, especially those that rely on tourism, will be far below pre-pandemic levels. The gap in emerging markets will be even greater: India’s production will be nearly 10% lower than the November 2019 forecast.

The OECD said that in the long run, the G7 countries, especially the United Kingdom, may have the most serious damage to economic productivity, and Brexit will aggravate the scars of the pandemic.

Laurence Boone, chief economist at the OECD, said: “As countries transition to better prospects, it is dangerous to believe that the government has taken enough measures to push growth onto a higher and better path.”

She added that the support provided by many countries to businesses and households helps protect people’s income and limit damage to economic suppliers.

But this crisis has highlighted the need to improve health and education systems and to fund digital and climate transformations. Boone said that as some departments reopen while others are still restricted, support should become more targeted and “the focus should be on investment.”

The OECD optimistically predicts that the biggest risk is the failure to ensure the supply of Covid vaccine to emerging and low-income countries.

Boone said: “The global economic and social costs of maintaining closed borders dwarf the cost of wider availability of vaccines, tests, and sanitary products.”

Another concern is the high debt held by small and medium-sized companies, especially in European countries that provide support to companies mainly through loans rather than grants.

According to the OECD, one approach might be to convert some pandemic-related loans into grants, with the terms of repayment depending on performance and regular assessments of feasibility.

Boone is more optimistic about the risks of expansionary policies, especially in the United States, of exacerbating persistently high inflation.

The OECD admits that prices may rise in the short term due to port congestion and bottlenecks in some industries that are rapidly reopening.

But it believes that the labor market is still weak, which will suppress wages, and by the end of 2022, the employment rate in OECD countries will be lower than the pre-crisis median.