The U.S. economy is projected to expand at a rapid pace this year, more than doubling December estimates from the Organisation for Economic Co-operation and Development (OECD), thanks largely to a so-far successful vaccine rollout and major stimulus injection by the federal government.
The OECD expects the gross domestic product in the U.S. to grow 6.5% year over year, according to its March economic outlook report. That’s up from 3.2% in annual growth it forecast in December.
“This will not only boost the U.S. economy, it will fuel global growth through increased demand in the United States, and from the U.S. to the rest of the world,” OECD Chief Economist Laurence Boone said at a press conference on Tuesday, referencing the $1.9 trillion relief legislation Biden signed on Thursday along with the $900 billion package passed in December under the Trump administration.
The combination of the $900 billion stimulus package passed in December, the $1.9 trillion stimulus package signed into law this week, the fast vaccine rollout, and low interest rates would not only help the U.S. but also lift global output.
Global GDP growth is projected to be at 5.6% this year, an upward revision of more than 1 percentage point compared with the December’s forecast. In the eurozone where the levels of fiscal stimulus have been lower and the vaccine rollout slower, the OECD only revised up the GDP forecast 0.3 percentage point to 3.9%, the report found. GDP revisions were higher for the Asian-Pacific region.
“Most countries will not get back to pre-pandemic level until later this year or in 2022,” Boone said. “In other words, they would have lost two or three years of growth, which is very long. It risks leaving significant scars in terms of jobs and well-being.”
‘This is not enough to catch up with what was lost in the pandemic’
The pandemic may have long-lasting effects on most countries’ economies. But the U.S. remains the only country that will grow above the OECD’s pre-pandemic projections.
“For most countries, this is not enough to catch up with what was lost in the pandemic,” Boone said. “The United States on the far right of the chart would have fully reversed the COVID hit to GDP.”
U.S. GDP is now expected to grow 0.2 percentage point more than the OECD’s forecast in 2019 before the pandemic began. By contrast, the world’s economic growth in the fourth quarter is expected to be 3 percentage points lower than the OECD’s original forecast in 2019, with the eurozone’s GDP is projected to fall short of the 2019 forecast by 3.8 percentage points.
Among the analyzed countries, India and Indonesia are forecast to see the sharpest difference in fourth quarter expectations, 7.8 and 6.9 percentage points lower, respectively, compared with what the OECD projected originally in 2019.
The pace of vaccination is an important factor for the OECD’s upward revisions, which works hand-in-hand with stimulus support. A slow vaccination rate, on the other hand, can undermine government support.
“In the U.S., the combination of fast vaccination, reopening the economy, and the fiscal stimulus will significantly improve the recovery,” Boone said, “as people are able to return to go out, to shop, dine and travel.”