Global growth will hit a 5-decade high in 2021 on vaccine-powered rebound, OECD says in upgraded forecast

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  • The OECD lifted its 2021 global GDP estimate to 5.8% from 4.2%, forecasting the fastest growth since 1973.
  • Group of 20 countries will see even stronger growth and emerging countries will lag, the organization said.
  • Central banks need to look through temporary inflation and keep policy support in place, the OECD added.
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Economic recoveries are improving around the world, but the global rebound remains massively uneven, the Organization for Economic Co-operation and Development said in a new report.

The OECD revised its estimate for global gross domestic product higher on Monday, citing unprecedented policy support and the effectiveness of COVID-19 vaccines. Output is now expected to grow 5.8% in 2021, up from the December 2020 forecast of a 4.2% expansion. That rate would mark the strongest year of economic growth since 1973 and follow last year’s 3.5% contraction, the OECD said.

Global GDP will then grow 4.4% in 2022, according to the report. Global income will still sit roughly $3 trillion below its pre-crisis trend by the end of next year as emerging countries struggle to keep up.

“The global economy remains below its pre-pandemic growth path and in too many OECD countries living standards by the end of 2022 will not be back to the level expected before the pandemic,” Laurence Boone, chief economist at OECD, said.

Living conditions aren’t the only disparity expected to widen through the recovery. Real GDP is expected to grow 6.3% and 4.7% among G20 nations in 2021 and 2022, respectively. That outpaces the average growth estimate.

Meanwhile, some emerging-market economies are expected to post substandard growth in the near term. Countries still enduring deadly waves of COVID-19 such as India and Brazil “may continue to have large shortfalls in GDP relative to pre-pandemic expectations” and only bounce back once the virus threat fades, the organization said.

Improving vaccine distribution is key to supporting such countries, especially as virus uncertainties linger. New variants of COVID-19 could necessitate a return to partial lockdowns if populations aren’t vaccinated quickly enough, the organization warned. Such a resurgence could also drag consumer confidence lower and halt any rebound in spending.

Upside risks have emerged as well. Household saving boomed through the pandemic, and that cash could soon be unleashed as people unwind pent-up demand. Spending just a fraction of the bolstered savings “would raise GDP growth significantly,” the OECD said.

But with spending comes inflation. Supply-chain disruptions and bottlenecks around the world have driven material prices higher in recent months. When coupled with a sharp bounce in demand and various stages of reopening, price growth now sits at its highest levels in more than a decade. The OECD expects inflation to average 2.7% in 2021 before cooling to 2.4% next year.

Central banks should allow for a brief inflation overshoot as production normalizes and temporary pressures ease, Boone wrote. Running economies hot can allow for stronger hiring and wage growth, particularly among low-income groups. Central banks must “remain vigilant” and look through temporary inflation, the economist said.

“What is of most concern, in our view, is the risk that financial markets fail to look through temporary price increases and relative price adjustments, pushing market interest rates and volatility higher,” Boone added.

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The US economy is set to grow at the fastest pace since 1984 thanks to stimulus and the rapid vaccine rollout, the OECD said

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The US has rolled out coronavirus vaccines quickly.

  • The US economy is set to grow at the fastest pace since 1984 this year, the OECD has said.
  • US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020, it said.
  • The organization said the US’ huge stimulus and speedy vaccine rollout was boosting growth.
  • See more stories on Insider’s business page.

The US economy is set to grow at the fastest rate since 1984 this year thanks to government stimulus and the speedy rollout of coronavirus vaccines, the Organisation for Economic Co-operation and Development (OECD) has said.

In its latest economic outlook, the OECD group of rich countries said US gross domestic product would grow 6.9% in 2021, after contracting 3.5% in 2020. That would be the biggest increase since 1984, according to World Bank figures.

The OECD’s new US forecast was an upgrade from March’s prediction of 6.5% growth, which was itself a sharp improvement on a December estimate of 3.2%.

The successive upgrades reflect the impact of both President Joe Biden’s $1.9 trillion stimulus bill and of vaccines, which are allowing states to reopen their economies. More than half of the US population has now had at least one shot.

“Substantial additional fiscal stimulus and a rapid vaccination campaign have given a boost to the economic recovery,” the OECD analysts wrote in their report.

The authors said the recovery had picked up speed: “Indicators of consumption activity have risen, with strong household income growth and a gradual relaxation of containment measures boosting spending.”

They added: “The reopening of the economy due to widespread vaccination of the population will enable activity in more sectors to return to normal.”

The OECD is a global organization that promotes growth and trade, with 38 member countries. Its economic forecasts are closely watched.

It predicted that the global economy would grow 5.8% in 2021, up from its March forecast of 5.6%.

Yet the global recovery will be highly uneven, and the pandemic will hit some countries’ living standards hard, according to OECD chief economist Laurence Boone.

“It is with some relief that we can see the economic outlook brightening, but with some discomfort that it is doing so in a very uneven way,” she said in an introduction to the report.

“It is very disturbing that not enough vaccines are reaching emerging and low-income economies. This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies.”

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Janet Yellen wants to overhaul corporate taxes for the whole world – she’s talking to other countries about a minimum rate

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Treasury Secretary Janet Yellen.

  • The Washington Post reports Treasury Secretary Yellen is working on a global minimum tax rate.
  • The nonbinding rate would apply to multinationals, as she seeks to keep them from shopping for the lowest territory.
  • Yellen and Biden want to raise the corporate tax rate but need the rest of the world onboard.
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Treasury Secretary Janet Yellen has been clear since her confirmation hearing and subsequent press appearances that the Biden administration needs to raise new tax revenues. At the same time, she’s warned of the difficulties of implementing a wealth tax, which is favored by the progressive wing of the Democratic Party.

Part of the solution is reforming the corporate tax rate – not just in the US but far beyond its borders.

To that end, Yellen is in active talks with other countries about setting a global minimum rate for corporate taxes, The Washington Post’s Jeff Stein first reported.

The US was long an outlier, with a corporate tax rate of 35% versus the international average of 24%, until former President Donald Trump’s 2017 tax cut slashed the corporate rate to 21%. But even that hasn’t stopped other countries from lowering their rates to attract multinationals. The Post noted that nine countries lowered their corporate tax rate just last year.

Nobel Prize-winning economist Joseph Stiglitz, a mentor of Yellen’s, told the Post that if she is successful in these talks, it would be “a little like the Paris climate accord of taxes.” Yellen is holding talks with more than 140 international counterparts via the Organization for Economic Cooperation and Development (OECD), where countries are looking at global tax issues, with a particular focus on tech.

The goal for now is a nonbinding consensus on a minimum tax rate within the OECD, with the thinking that the US could move off the Trump-era 21% without fear of multinationals leaving to pay taxes at a lower rate somewhere else.

In the background of Yellen’s push for a global minimum is the Biden administration’s current push to find more tax revenue. President Joe Biden is reportedly planning the first major federal tax increase in nearly three decades, according to Bloomberg. One of the proposals on the table is a raise to the corporate tax, something that Biden campaigned on. He’s proposed raising the corporate tax rate to 28%.

The right-leaning Tax Foundation found that, since 1980, the “worldwide average statutory corporate tax rate has consistently decreased,” with the biggest drops coming in the early 2000s. According to the Tax Foundation, “the worldwide average statutory corporate income tax rate” is 23.85%.

Biden also just said this week that Americans earning over $400,000 could see an increase in their taxes, a measure he acknowledged may not win any Republican support.

There could be a complicated path forward for Yellen’s corporate minimum, per the Post. Congress may need to be involved in approving new tax rules, and it could take the countries involved years to enact the tax, if they even choose to adopt it.

As the Post reports, if the complex measure is successful, it would be a huge accomplishment for both Yellen and Biden’s presidency – and maybe the world. It could also help pay for a $2 trillion infrastructure package.

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