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OECD raises international financial outlook for vaccine progress and sees China driving restoration

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LONDON – The Organization for Economic Co-operation and Development (OECD) expects the world economy to gain momentum in the next two years. Real gross domestic product (GDP) growth is expected to reach pre-pandemic levels by the end of 2021.

"For the first time since the pandemic began, there is now hope for a better future," the OECD said Tuesday, citing advances on coronavirus vaccines and unprecedented measures by the government and global banks to mitigate the economic impact of the crisis.

"The worst has been avoided, most of the economic fabric has been preserved and could quickly revive, but the situation remains precarious for many vulnerable people, companies and countries."

In its latest economic outlook, the OECD expects the world economy to contract by 4.2% this year. This reflects an upward revision from an estimate made in September which indicated a 4.5% decline in real GDP.

Looking ahead, the group said global economic growth would average 4% over the next two years. Real GDP growth is expected to reach 4.2% in 2021 – up from a September forecast of 5% – and 3.7% in 2022.

However, it warned of "significant" uncertainty and called on policymakers around the world to provide targeted support to vulnerable children, people and businesses to reduce the risk of the coronavirus crisis "scarring".

Tax breaks "pay off well"

The OECD, which monitors and advises its 37 member countries on economic policy issues, was cautiously optimistic that the global economy would gain momentum by 2022.

Among other things, she cited scientific advances, pharmaceutical advances and adjustments in the behavior of people and companies as factors that could help keep the virus in check and that make it possible to gradually lift severe restrictions on mobility.

Coupled with the reduced uncertainty and exceptional budget relief over 2020, which the OECD expects to "pay off well", the global economic recovery is expected to accelerate as more activity reopens.

CSL staff will be working in the laboratory on November 08, 2020 in Melbourne, Australia, where they will begin manufacturing the AstraZeneca-Oxford University's COVID-19 vaccine.

Darrian Traynor | Getty Images

Several encouraging developments in the race for a safe and effective coronavirus vaccine have been announced in the past few weeks, with hope that the world may soon return to a semblance of normalcy.

It is hoped that coronavirus vaccines will help end the pandemic that wiped out part of the global economy and claimed more than 1.46 million lives worldwide.

China should drive the global recovery

However, the OECD said that economic recovery would be uneven between countries, "which would potentially lead to permanent changes in the world economy".

China was expected to account for more than a third of world economic growth in 2021, while the contribution of Europe and North America "will remain less than their weight in the world economy".

The OECD said China, which began to rebound earlier than its peers, posted economic growth of 1.8% this year. It is still the only major economy expected to grow in 2020.

For the world's second largest economy, real GDP growth of 8% next year and 4.9% in 2022 was forecast.

For comparison, the US was expected to decline 3.7% in 2020, before growing 3.2% in 2021 and 3.5% in 2022.

In the euro area, real GDP was -7.5% this year, 3.6% in 2021 and 3.3% in 2022.

"Despite the enormous political band aid, and even in an upward scenario, the pandemic will have damaged the socio-economic fabric of countries around the world," the OECD said in its report.

"People living in poverty, who tend to be less well covered by social safety nets, have made their situation even worse. Children and young people from less affluent backgrounds and less skilled adult workers find it difficult to study and work from home what is potentially long-lasting damage. "

The OECD said governments need to use their policy tools to actively ensure that those hardest hit by the coronavirus crisis get the support they need.

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Katherine Clark