The Irish economy is set to grow by 4.2 per cent in 2021, in spite of stringent measures introduced early in the year due to the Covid-19 crisis, according to the OECD. And it will rise by 5.1 per cent in 2022 on the back of pent-up consumer spending.
The Organisation for Economic Co-operation and Development had previously forecast 3 per cent growth this year in an analysis published in late December.
The OECD said the economy is poised for a strong recovery with a marked rebound in spending driven by savings that have been accumulated by households during lockdown.
The forecast is included in a new report in which the OECD says the global economic outlook is improving as vaccine rollouts allow businesses to resume operations and as the US pumps trillions of dollars into the world’s largest economy.
The global economy is now set to grow 5.8 per cent this year and 4.4 per cent next year, said the OECD. The organisation raised its estimates from 5.6 per cent and 4 per cent respectively in its last forecasts released in March.
Looking at the Republic, it said the easing of Brexit-related uncertainties has improved the business investment outlook. But it said investment will likely remain below its historically high levels in 2019.
The OECD said short-term frictions in the Brexit agreement’s implementation could still dampen momentum. It also said rising house prices should support residential investment.
The organisation said in light of persistant risks related to the coronavirus pandemic and Brexit, State policy needs to remain supportive of businesses as Covid-related supports are scaled back.
“Increased targeting of fiscal measures on workers most at risk of long-term unemployment, as well as a simpler examinership scheme for debt-saddled SMEs, would facilitate the reallocation of resources and limit potential scarring effects from the pandemic,” it said.
The global economy has now returned to pre-pandemic activity levels. But it has not yet achieved the growth expected prior to the global health crisis, said the OECD in its latest Economic Outlook publication on Monday.
"The world economy is currently navigating towards the recovery, with lots of frictions," said the organisation's chief economist, Laurence Boone, in an editorial.
“The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated,” she added.
While vaccination campaigns are allowing advanced economies to reopen gradually for business, many emerging market economies are being held back by slow vaccination deployment and further Covid-19 outbreaks, said the OECD.
It said central banks in advanced economies should keep financial conditions relaxed and tolerate inflation overshooting their targets. Sizeable spare capacity in the global economy would help keep a sustained increase in inflation at bay despite recent price pressures triggered by supply chain bottlenecks as economies reopen, it added.
While confident that central banks would not get spooked by temporary price increases, Ms Boone said she was less certain about financial markets, where she saw a risk of higher market rates and volatility.
Governments should keep up income support for households and companies until vaccination is widespread enough to protect the most exposed sectors, said the OECD.
Buoyed by a multitrillion-dollar stimulus plan, the US economy is expected to grow 6.9 per cent this year, said the OECD. This is up from a previous forecast of 6.5 per cent. It is expected to expand 3.6 per cent in 2022, down from a 4 per cent forecast in March. The US stimulus plan is expected to add three to four percentage points to US growth and 1 per cent to global growth while bringing the US economy back to pre-crisis levels by mid-2021.
The Euro zone is forecast to grow by 4.4 per cent, slightly down on the 4.3 per cent predicted earlier this year. In China, gross domestic product growth is estimated at 8.5 per cent, versus 7.8 per cent in March. In Britain, growth of 7.2 per cent is expected, as against 5.1 per cent in the earlier forecast. – Additional reporting Reuters