: The global recovery remains uncertain — here’s why the OECD wants fiscal stimulus to continue

Laurence Boone, chief economist of the Organization for Economic Cooperation and Development.

AFP via Getty Images

The world economy will bounce back in 2021 with global gross domestic product jumping up by 4.2% after falling in similar proportion this year, the Organization for Economic Cooperation and Development says in its latest report. But growth prospects remain “exceptionally uncertain” and increased fiscal support through public spending will remain necessary.

-“This is not the time to reduce support, as was done too early in the aftermath of the Global Financial Crisis” 10 years ago, writes OECD chief economist Laurence Boone, in the report.

-The OECD discards worries about higher public debt levels, insisting they shouldn’t be a short term concern: “Heightened policy activism need not be a concern if deployed to deliver higher and fairer growth,” Boone writes.

-To be effective, public spending must, however, be focused on health, education and infrastructure. “Redirecting public spending towards essential goods and services would signal that governments have learnt lessons from the crisis,” the report says.

-The OECD sees the U.S. economy growing 3.2% next year after a 3.7% contraction in 2020, while the eurozone’s GDP is seen up 3.6% after a 7.5% fall this year. “The bounceback will be strongest in the Asian countries that have brought the virus under control,” the report notes.

-The OECD cautions against excessive optimism, noting that governments may yet again impose restrictions on economic activity in 2021 if the virus keeps spreading, and if “vaccine distribution or secondary effects prove disappointing.”

From the archives (June 2020): The OECD warns a second virus wave is as likely as not — here’s what that would do to the economic recovery

The outlook: The international organization’s report illustrates how the recession and subsequent rebound were and will be uneven throughout the world. And suggests that the post-pandemic global economic landscape may be significantly different from its pre-2020 state.

Insistence on the need for continued stimulus should help governments fight the rising chorus of fiscal restraint advocates who are warning against rising public deficits and debts. But it is also an incentive for them to spend well, since some forms of public spending are more efficient than others. As the OECD notes, the strength of the recovery so far isn’t correlated with the amount of extra spending decided by governments during the pandemic.

Read: Recovery Still Uncertain, Needs Continued Fiscal Support: OECD

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December 05, 2020 at 09:17PM

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