Widespread vaccination of the adult population is the best economic policy available today to get the economies and employment growing again, according to Laurence Boone, Chief Economist at the Organisation for Economic Co-operation and Development.

In an interim outlook, the Paris-based OECD said the global GDP growth is projected to be 5.5 per cent in 2021 and 4 percent in 2022, with global output rising above the pre-pandemic level by mid-2021.

Despite the improved global outlook, output and incomes in many countries will remain below the level expected prior to the pandemic at the end of 2022, it said.

The significant fiscal stimulus in the US along with faster vaccination, could boost US GDP growth by over 3 percentage points this year, with welcome demand spillovers in key trading partners.

The 37-nation OECD said there are increasing signs of divergence across countries and sectors. "Strict containment measures will hold back growth in some countries and service sectors in the near term, while others will benefit from effective public health policies, faster vaccine deployment and strong policy support," it said.

Sizeable risks remain

While faster progress in vaccine deployment in all countries would enable restrictions to be lifted more quickly and enhance confidence and spending, slow progress in vaccine rollout would result in a weaker recovery, larger job losses and more business failures.

"The top policy priority is to ensure that all resources necessary are used to produce and fully deploy vaccinations as quickly as possible throughout the world, to save lives, preserve incomes and limit the adverse impact of containment measures on well-being," OECD said.

Fiscal policy

Fiscal policy support should be contingent on the state of the economy and the pace of vaccinations, with new policy measures implemented promptly and fully if required.

"A premature tightening of fiscal policy must be avoided," the report said.

The current very accommodative monetary policy stance should be maintained and allow temporary overshooting of headline inflation provided underlying price pressures remain well contained, with macroprudential policies deployed where necessary to ensure financial stability.

Continued income support for households and companies is warranted until vaccination allows a significant easing of restraints on face-to-face activities but should be refocused to support people and help companies with grants and equity rather than debt, OECD said in its report.

(Reporting by Seban Scaria seban.scaria@refinitiv.com; editing by Daniel Luiz)

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