The difference in pace of vaccination and the impact of the Biden stimulus package will lead to an increase in the eurozone’s disadvantage versus the United States in the recovery of the economy this year, according to forecasts released Tuesday by the OECD.
The interim economic projections for the G20 countries, carried out by the Organization for Economic Co-operation and Development (OECD), show that this institution is now much more optimistic about how the world economy will recover from the record losses in 2020, where the world’s major economies are GDP -Growth forecasts for 2021 have now become more favorable compared to the forecasts from last December.
The OECD now predicts that global GDP will grow by 5.6% in 2021 (after falling 3.4% in 2020), while in December it only pointed to a recovery of 4.2% this year.
However, this improvement in projections is felt very differently in different parts of the world. If in the euro area, which saw GDP decline by 6.8% in 2020, the growth forecast for 2021 was revised from 3.6% to 3.9%, it was in the USA, whose GDP in 2020 rose by 3, 5% down, the upward revision for 2021 much more pronounced, from 3.2% to 6.5%.
While the North American economy is expected to return to pre-crisis levels later this year, the eurozone will need more time to wait for that to happen. For the year 2022, the OECD has revised its growth forecast for both the euro area and the USA by half a percentage point to 3.8% and 4% respectively.
The three main reasons the OECD has cited for forecasting higher growth rates this year and next are “the gradual use of effective vaccines, the announcement of additional budget support in some countries, and signs that economies are coping better Measures to manage the progress of the virus ”.
The reasons for the difference in expected performance between the US and the euro zone are also found in the first two reasons in particular. On the one hand, the OECD report states that “the speed of the vaccination process varies considerably between countries”. While in the US the percentage of the population that has already received at least one vaccine dose is approaching 20%, in the EU this percentage is still well below 10%. This weakens the prospects for the economy to open up and the accompanying acceleration of growth.
In terms of stimulus packages, the big difference to the December scenario was the approval of the Biden plan in the US. This package of measures will have a positive impact on economic growth worldwide, but the impact on the North American economy will of course be much greater.
According to the OECD, the Biden plan is expected to increase the growth rate of US GDP by three to four percentage points. The positive effect in the euro zone does not exceed half a percentage point.
“There is increasing evidence of differences between countries and sectors. Tight containment measures limit growth in some countries and in the service sector in the short term, while others will benefit from effective public health policies, faster vaccine delivery and stronger political support. [orçamentais e monetárias]”Says the report published by the OECD on Tuesday.
These signs of divergence are evident between the US and the EU, but also, and more worryingly, between the world’s richest and poorest countries (those most lagging behind on vaccination and the least budgetary to introduce stimuli).
Differences are also striking within the EU itself, with the countries most dependent on the service sector (mainly tourism) being the most disadvantaged, with a focus on Spain, Italy, Greece and Portugal.
The OECD did not provide new forecasts for all countries and did not update the projections for Portugal, for example. A slight upward revision of the forecast for Portuguese GDP growth in 2021 (which was only 1.7% in December) would be likely, in line with what happens to the largest euro area countries.
Economic data, which are known for the first two months of this year, show that the containment measures applied, contrary to the measures initially feared, are now having a less negative impact on economic activity than the pandemic at the beginning of the second quarter of 2020.