The OECD has forecast that the Irish economy will grow by 4.2% in GDP terms this year.

In its latest Economic Outlook, the Organisation for Economic Cooperation and Development said that pent-up consumer demand and the unwinding of excess savings could see the economy here grow by a further 5.1% next year.

The Paris-based think tank said that Government policies should not be cut back because of ongoing health and Brexit-related risks.

It said that as the economy opens up, supports should be more targeted at those at risk of becoming long-term unemployed.

It also said a simper examinership scheme for debt-saddled small and medium sized companies would limit the potential long-lasting impact of Covid on the economy.

Noting that trade flows with the UK dropped dramatically in the early part of this year, the OECD said this partly reflected stock-building by companies in advance of last year's Brexit trade deal.

It also noted there could be a higher bankruptcy risk to firms as supports are withdrawn and that the high level of savings may be concentrated in higher-income households.

This could mean more could be saved than spent, potentially slowing down the projected consumer-led recovery.

It advised that business supports should be tapered down to prevent an abrupt "large scale liquidation" of predominately small companies.

The OECD also said today that the global economic outlook is improving as vaccine rollouts allow businesses to resume operations and as the US pumps trillions of dollars into the world's largest economy.

The OECD said it was nudging its forecasts higher.

The global economy is set to grow 5.8% this year and 4.4% next year, the Organisation for Economic Cooperation and Development said.

This marked increases from its estimates of 5.6% and 4% respectively in its last forecasts released in March.

The global economy has now returned to pre-pandemic activity levels, but has not yet achieved the growth expected prior to the global health crisis, the OECD said in its latest Economic Outlook publication.

"The world economy is currently navigating towards the recovery, with lots of frictions," OECD chief economist Laurence Boone said in an editorial to its Outlook.

"The risk that sufficient post-pandemic growth is not achieved or widely shared is elevated," she added.

While vaccination campaigns were allowing advanced economies to gradually reopen for business, many emerging market economies were being held back by slow vaccination deployment and new Covid-19 outbreaks, the OECD said.

The OECD said central banks in advanced economies should keep financial conditions relaxed and tolerate inflation overshooting their targets.

Sizeable spare capacity in the global economy would help keep a sustained increase in inflation at bay despite recent price pressures triggered by supply chain bottlenecks as economies reopen, it said.

While confident that central banks would not get spooked by temporary price increases, Boone said she was less certain about financial markets, where she saw a risk of higher market rates and volatility.

Governments should keep up income support for households and companies until vaccination is widespread enough to protect the most exposed sectors, the OECD said.

Buoyed by a multi-trillion-dollar stimulus plan, the U.S. economy was seen growing 6.9% this year, the OECD said, up from a previous forecast of 6.5%. It is expected to expand 3.6% in 2022, down from a 4.0% forecast in March.

The US stimulus plan was seen adding 3-4 percentage points to US growth and 1% to global growth while bringing the US economy back to pre-crisis levels by mid-2021.

Additional reporting Reuters