With the distribution of vaccines taking place around the world, international agency, The Organisation for Economic Co-operation and Development (OECD) believes the global economy will pick up, expanding by 5.6 per cent this year.

Although the forecast by the OECD looks brighter, it will come at considerable costs with governments resorting to massive stimulus packages in an effort to kick-start their economies.

The Biden administration has now signed off on a US$1.9- trillion COVID relief plan for the United States (US).

Last year, the global economy lost half a billion jobs.

The Paris-based agency in its latest report on the global economy predicts the US economy will expand by 6.5 per cent this year, three points higher than its estimate in December, but lowered its forecast of China’s economic growth to 7.8 per cent for 2021.

“The significant fiscal stimulus in the United States along with faster vaccination could boost US GDP growth by over three percentage points this year, with welcome demand spillovers in key trading partners.”

According to the report, India will be among the large economies most severely hit by the pandemic, and the real GDP value of India’s economy for the fourth quarter of 2021 will be 7.8 per cent lower than the OECD’s pre-pandemic prediction.

India’s recovery is expected to be V-shaped with a GDP growth rate of seven per cent for the next 13 years. The report drew attention to India’s significant rebound despite its dire forecast on the country.

“The rebound has been relatively fast in several large emerging market economies. Activity moved above pre-pandemic levels in China, India and Turkey, helped by strong fiscal and quasi-fiscal measures and a recovery in manufacturing and construction.”

The UK is expected to grow by 5.1 per cent this year and by 4.7 per cent next year.

The report also noted a change in economic pattern activity with a shift to more online transactions with these sales going up by 20 per cent on last year’s figure and by as much as 60 per cent in the UK and Canada.

Vaccination rollouts have been uneven and this too will have an impact on economic recovery, says the OECD.

“Slow progress in vaccine rollout and the emergence of new virus mutations resistant to existing vaccines would result in a weaker recovery, larger job losses and more business failures,” said the report.

It also called on governments to continue with fiscal stimulus and that “a premature tightening of fiscal policy must be avoided”.

Of particular worry to the OECD is the high level of corporate debt as companies scramble to remain afloat. A red flag is that debt servicing levels are now above the levels seen during the financial crisis of 2008. This coupled with a sharp rise in prices (oil is already going up) could prove calamitous.

“Although some firms have used borrowing to build up sizeable cash buffers since the onset of the pandemic, high leverage could moderate new investment. If the recovery is slower than expected, or government support programs end too soon, this could trigger additional debt delinquencies or defaults,” the OECD report warned