Countries that would recover faster after the 3:14 pandemic
(CNN Business) -
We finally have good news: the growth prospects for the world economy are clearly improving.
The Organization for Economic Cooperation and Development (OECD) updated its global growth forecast on Tuesday and the forecast is significantly improved.
The agency indicated that "the economic outlook has improved remarkably in recent months" and pointed to the development of vaccines against the coronavirus and the announcements of additional stimuli.
The Paris-based agency expects the global economy to grow 5.6% in 2021. This figure represents an improvement of more than one percentage point compared to its December estimate.
The US economy is expected to grow 6.5% this year, more than three percentage points than was estimated in December.
The agency pointed to the effects of "strong fiscal support" on President Biden's stimulus package worth $ 1.9 trillion.
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However, the OECD also emphasized that extreme uncertainty remains.
And he warned that many factors could put the recovery at risk.
Factors that could impact the growth of the economy
An example of this: Investors are increasingly concerned that an increase in activity could cause prices to rise in the coming months.
This could force central banks to raise interest rates or cut bond purchases ahead of schedule.
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According to the OECD, a rebound in demand, especially from China, is driving up food and metal prices.
Oil prices, meanwhile, have experienced a strong recovery.
The group said it will be critical for policy makers to maintain economic stimulus, even if inflation exceeds some targets.
The possibility of a steep rise in prices is not the only fear.
The agency noted that vaccination campaigns are advancing at different speeds around the world and that variants of the coronavirus that resist vaccines could still emerge.
"Slow progress in vaccine deployment and the emergence of new virus mutations resistant to existing vaccines would lead to a weaker recovery, greater job losses and more bankrupt businesses," he noted in his report.
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The OECD calls on governments to maintain support
The OECD also said that it is essential that governments maintain their support for the economy even as the situation begins to improve.
The president of the European Central Bank, Christine Lagarde, issued a similar warning, saying that countries should not withdraw stimulus "crudely."
"A premature tightening of fiscal policy must be avoided," the group said.
Another concern is high debt levels.
The OECD focused on corporate debt burdens in particular.
Debt service charges are at or above the levels of the 2018 financial crisis even when interest rates are at historic lows.
"Although some companies have turned to debt to build up sizeable cash reserves since the start of the pandemic, high leverage could dampen new investment," he said.
If the recovery is slower than expected, or if government support programs end too soon, this could 'trigger further delinquencies or
defaults
'.
Right now those are just hypotheses.
But growth expectations are also hypotheses, which will materialize in the coming months.
The OECD report is a reminder that while the outlook is encouraging, it is also tentative.
