Laurence Boone has no doubt where we’ll find the next leg up for the encouraging but uneven global economic recovery.
It’s in a syringe. Or, more accurately, a few billion of them.
“The best economic policy is to vaccinate,” the chief economist for the Organization for Economic Co-operation and Development said in an interview from her Paris office last Friday.
Ms. Boone was spending a rare day at the OECD’s headquarters, preparing for the Monday morning release of the international economic body’s newest global economic outlook. Like many of us, the organization’s staff have been mostly working from home for the past 14 months or so. But the OECD’s new forecasts illustrate how the arrival of vaccines over the past five months has rapidly accelerated the global economy and brought the prospect of a return to normal tantalizingly close in many countries – though by no means all of them.
“We are in the start of the transition phase,” Ms. Boone said, as countries emerge from crisis mode and begin to look toward sustained health. “But it’s a very uneven recovery.”
The OECD forecasts that world real gross domestic product will grow 5.8 per cent in 2021 – up dramatically from 4.2 per cent in its last full outlook report in December, before vaccines began their global rollout. The new projection is also up from an interim forecast of 5.6 per cent issued in March.
The new outlook includes a big upgrade of Canada, whose vaccination program was a serious laggard at the time of its interim forecast, but has shifted into high gear since then. The OECD now sees Canadian GDP growth of 6.1 per cent this year – far ahead of the 4.7 per cent it projected in March. This despite a third wave of the pandemic that set back the recovery over the spring.
Ms. Boone said that “buoyant external demand” from the United States, by far Canada’s biggest export market, which the OECD figures will grow even faster, spurred by massive government stimulus spending, has added critical fuel to the Canadian growth story.
“It’s a rather positive picture, or, at least, a brighter one,” she said of the Canadian outlook.
But she’s worried that many low-income and developing countries remain in a much more precarious position than advanced economies such as Canada. And the critical factor in that disparity is the unequal access to vaccines and other desperately needed health supplies. The climate of me-first protectionism in the race to overcome COVID-19 poses a serious threat to a full and equitable recovery.
If not addressed, the danger is that the COVID-19 pandemic could leave some of the poorest countries in the world behind, reopening inequality gaps between the developed and the developing world that had been narrowing for decades leading up to this crisis.
Ms. Boone noted that the fast-growing capacity to produce vaccines should provide scope for wealthier countries to deliver much more supply to the developing world in the coming months – especially if regulatory processes can be sped up. According to data collected by UNICEF, more than half of the global vaccine production capacity available for the second half of this year represents vaccines that haven’t yet been approved.
More generous international funding would also help. The World Health Organization estimates that its ACT-Accelerator program – designed to provide COVID-19 vaccines, protective equipment, diagnostic tests and treatments to less-developed countries that most need the help getting them – is nearly US$20-billion short of the necessary funds for this year.
“As long as the vast majority of the global population is not vaccinated, all of us remain vulnerable to the emergence of new variants,” Ms. Boone said in the economic outlook report.
“Notwithstanding the impact on lives and livelihoods, the global economic and social cost of maintaining closed borders dwarfs the costs of making vaccines, tests and health supplies more widely available to these countries.”
Beyond the urgent health issues, there is a concern that advanced economies, spooked by the disruptions and uncertainties the pandemic has caused to global supply chains, might emerge from the pandemic with an appetite to domesticate their supply sources in the name of economic and health security. Mr. Boone said this could particularly hurt the recovery of developing countries, whose economies have benefited greatly from the diversification and globalization of supply chains in the past couple of decades.
One of the best things that businesses and governments in advanced countries can do to help the developing world’s recovery, she argued, is to resist that temptation.
“A key [to developing-world recovery] is participation in the global supply chain,” she said.
In the near term, Ms. Boone acknowledged, the rapid recovery has caused supply chain bottlenecks that have fuelled inflationary pressures in some sectors. She’s generally in the camp that believes those pressures will be temporary, as suppliers take time to adjust to the rapid recovery and continued reopening.
Nevertheless, she said, it would be a mistake to be too complacent about the inflation signals, in a pandemic that has found many ways to challenge economists’ beliefs and assumptions.
“We should think carefully about inflation, and we should be humble,” she said.
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