A surprisingly strong surge in U.S. growth will drive a sharp rebound in the world economy this year, but the strength of the American bounce could unbalance weaker economies, particularly in the developing world.
According to the Organization for Economic Cooperation and Development, the rise in U.S. government bond yields in response to higher growth and inflation expectations could spark capital flight from emerging economies, where vaccine campaigns have barely begun and whose economic recovery is expected to take longer.
The Paris-based research body now expects the world economy to reach pre-pandemic levels of output by the middle of this year, six months earlier than it expected when it last published updated forecasts, in November. It now sees global output increasing by 5.6% in 2021, having declined by 3.4% in 2020. In November, it forecast global growth for this year of 4.2%.
The main reason for the upgrade is a stronger outlook for the U.S. economy, which it now sees expanding by 6.5%, more than twice the pace it forecast in November and the fastest expansion since 1984.
OECD Chief Economist Laurence Boone said that reflects an expectation that fiscal stimulus will be delivered, as vaccinations help free the economy of its Covid-19 fetters. The Senate approved Sunday a $1.9 trillion coronavirus relief bill, paving the way for passage through the House as early as Tuesday.
