U.S. Covid-19 Stimulus Set to Turbocharge World Economy as Europe Lags

A U.S. recovery turbocharged by President Joe Biden’s stimulus package will help power a faster than expected global economic upswing that risks leaving Europe behind, according to OECD forecasts.

The Paris-based organization said it now expects global output to rise above pre-pandemic levels by mid-2021 after major economies showed greater resilience at the end of 2020, and as evidence of vaccine efficacy grows and governments add extra demand stimulus.

It raised its world growth forecast for 2021 to 5.6% from 4.2% and more than doubled its prediction for the U.S. to 6.5%. OECD models indicate that Biden’s measures will raise output around 3% to 4% on average in the first full year of the package and add a full percentage point to world economic output.

“This will not only boost the U.S. economy, but it will fuel global growth through increased demand in the U.S. and from the U.S. to the rest of the world,” OECD Chief Economist Laurence Boone said at a presentation in Paris.

The sharp upward revisions show the enormous uncertainty surrounding the rebound from the worst economic slump in living memory. U.S. borrowing costs and oil prices have returned to pre-crisis levels in recent weeks, sending ripples across global markets.

As a consequence, rising inflation expectations are putting pressure on central banks as they seek to ensure a smooth recovery with prolonged loose policies.

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