OECD Warns Against Ending Stimulus Despite Its Impact On Inflation

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The global economic rebound from COVID-19 will need continued government support to maintain its momentum, a Paris-based economic policy group said on Tuesday, despite fears that federal stimulus packages in the United States and elsewhere are contributing to higher inflation.

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The Organization for Economic Cooperation and Development projected that the world economy is on course to grow 5.7% in 2021, Reuters reported. That’s slightly down from earlier projections but would still represent a major improvement over last year when the global economy declined 3.4% during the worst of the COVID-19 pandemic.

The OECD also forecast that U.S. gross domestic product would expand 6% this year, Fox Business reported. That’s down nearly one percentage point from May when the group predicted GDP growth of 6.9%. The lower projection comes amid a rise in COVID-19 cases tied to the delta variant. But even 6% growth would be a big improvement over 2020’s U.S. GDP, which fell to an annualized rate of 3.5%.

The global economy is expected to rise 4.5% next year, the OECD said, up 0.1 percentage point from its earlier forecast in May.

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Meanwhile, the group urged government bodies to remain flexible with financial support for their countries and advised against withdrawing stimulus programs until the short-term economic outlook becomes clearer. It also advised central banks to remain flexible about monetary policy but recommended that they offer clear guidance about when they should act to tame inflation.

The OECD expects inflation to peak near the end of 2021 at an average of 4.5% in the Group of 20 major economies, before falling back to 3.5% by the end of 2022.

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The group’s recommendation to continue government stimulus programs comes despite mounting evidence that these programs have led to higher inflation.

As GOBankingRates reported earlier this week, the U.S. has experienced higher inflation than other developed countries at the same time it has passed much bigger stimulus packages. The massive amount of stimulus money being sent to Americans — combined with pent-up demand for goods and services as COVID-19 restrictions eased — created the perfect storm for inflation, experts say.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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