OECD warns of ending stimulus policies despite inflationary pressures | OECD


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The leading Western economic think-tank has warned governments and central banks against withdrawing support for growth too hastily, fearing that the recovery from the pandemic-induced recession may be incomplete.

The Paris-based Organization for Economic Co-operation and Development (OECD) said the continuation of the stimulus policies of the past 18 months was warranted because the recent upturn in inflation was likely to prove temporary.

Central banks – including the U.S. Federal Reserve and the Bank of England – began to voice concerns about rising pressures on the cost of living, but the OECD said political support was still there. necessary as long as the outlook was uncertain and employment had not yet fully recovered to its level. pre-crisis levels.

The think tank said central banks should combine loose monetary policy – keeping interest rates low and continuing asset purchase programs – with clear indications on the level at which they would be willing to see the inflation reach before taking action.

OECD Secretary General Mathias Cormann said: “The world is experiencing a strong recovery thanks to decisive action taken by governments at the height of the crisis. But as we have seen with vaccine distribution, progress is uneven. Ensuring that the recovery is sustainable and widespread requires action on a number of fronts – from effective immunization programs in all countries to concerted public investment strategies to build the future. “

The think tank said the global economy was on track to grow slightly slower than expected in its half-year outlook three months ago. Its interim update forecast a 5.7% expansion in 2021, down 0.1 points from its previous estimate.

Five of the G7 members – the major industrial nations – are now expected to grow less rapidly than in May. The UK growth forecast has been revised down from 7.2% to 6.7%, while the US and Germany have seen downward revisions of 0.9 and 0.4 point at 6% and 2.9%, respectively. France’s growth estimate has been raised by 0.5 point to 6.3% while Italy is now on track for 5.9% growth this year, up 1.4 points from to three months ago.

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Fueled by the recovery in demand for goods and tensions in the supply chain, inflation is expected to peak towards the end of the year at 4.5% on average in the Group of 20 major economies, before falling back to 3.5% by the end of 2022.

The OECD said a rapid increase in demand with the reopening of economies had pushed up the prices of major commodities such as oil and metals as well as food, which had a larger effect on the economy. inflation in emerging markets. The disruption of supply chains caused by the pandemic added to cost pressures, as shipping costs rose sharply.

Laurence Boone, OECD Chief Economist, said: “Policies have been effective in cushioning the shock and ensuring a strong recovery; planning for more efficient public finances, geared towards investing in physical and human capital is needed and will help monetary policy to normalize smoothly once the recovery is firmly established.

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