The Eurozone will recover much faster from the catastrophic impact of the pandemic than previously thought, with strong political support and progress on vaccination coverage that will help restart economic activity, according to the Organization for Economic Co-operation and Development (OECD).

The outlook for the European economy has remained largely unchanged since May. Growth in the Eurozone will rise by 5,3% this year, revised by 1 percentage point compared to May’s outlook. Respectively, the outlook for 2022 increased by 0,2 percentage points to 4,6%.

The organization also raised its forecast for inflation in the Eurozone by 0,3 percentage points to 2,1% in 2021 and by 0,7 percentage points to 1,9% in 2022. The forecast for 2022 exceeds the European Central Bank’s latest forecasts, which ranged at 1,7% and places it close to the Bank's target of 2%.

However, the continuing uncertainty following the unprecedented shock of the pandemic means that policymakers in Europe must maintain monetary and fiscal support for the time being. Early and abrupt change of political support, while short-term prospects are still uncertain, must be avoided as the risk of spreading new coronavirus mutations still exists. In addition, monetary policy should also provide clear guidance on how long policymakers will tolerate inflation.

In terms of the global economy, the OECD has left its forecasts largely unchanged. It reduced its forecasts for this year by 0,1 percentage points to 5,7% and rise it for next year by 0,1 percentage points to 4,5%.

While growing fears of Evergrande’s default have shaken global markets, the OECD believes that the Chinese authorities have the fiscal and monetary capacity to avert the shock. But for now, delayed progress in vaccination is the highest risk to the global economic recovery. Aside from the risk of unequal vaccination coverage, perhaps the main issue that concerns everyone is the prospect of inflation, which could turn into a more sustained trend. The risk of higher inflation makes it necessary for central banks to announce their policy plans in a clear manner.