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Still too early to ease economic support despite inflation spike By Reuters


© Reuters. FILE PHOTO – A view from the outside of Paris’ Organization for Economic Co-operation and Development (OECD), headquarters on September 3, 2009. REUTERS/Charles Platiau/File Photo

By Leigh Thomas

PARIS (Reuters) – A rapid rebound in global growth is on track but it is too early for governments and central banks to withdraw exceptional support for their economies despite a spike in inflation, the OECD said on Tuesday in an update of its economic outlook.

The world’s economy will grow by 5.7% in 2019, after a slump of 3.4% during last year’s worst COVID-19 crises, according to the Organisation for Economic Cooperation and Development. Its forecast was trimmed by 0.1 percent.

Paris-based Paris policy forum forecast that global growth will ease to 4.5% next years, an increase of 0.1 percentage point over its May prediction.

The OECD reported that global gross domestic product has returned to pre-COVID levels. However, activity in developing countries is slowing down because of low vaccination rates.

Inflation will rise to 4.5% in 20 countries, a peak that is fueled by rising demand and strains in supply chains. It should then fall to 3.5% at the end of 2022, according to the OECD.

Although most policymakers and central bankers have agreed that the current inflation spike is temporary, it is likely to be a reaction to economic recovery. However, this debate is still ongoing.

The OECD recommended that central banks keep monetary policy loose but give clear guidelines about the inflation level they are willing to tolerate.

It advised countries to be flexible in their support of their economies, and not withdraw it if the near-term outlook is uncertain.

In the United States, 6.0% growth was forecast this year. This is 0.3 points less than May. However, it will increase to 3.9% by 2022.

The growth rate of China was expected to be 8.5% in this year, and 5.8% by 2022. Both estimates are unchanged from the previous ones.

The OECD has increased its projections for growth in the euro zone this year by a full point to 5.3%, and increased its estimate for 2022 by 0.2% percentage points up to 4.6%.

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