OECD lowers global growth outlook and warns on inflation

Paris  — The main risk to the global economic outlook is if inflation continues unabated, the Organisation for Economic Co-operation and Development (OECD) said on Wednesday, as it lowered its outlook for global growth .

The global economy is now expected to expand by 5.6% this year, down from an earlier forecast of 5.7%, the OECD said in its updated economic outlook released as the Omicron variant has sparked concerns about its impact on the recovery.

Global growth  is expected to moderate to 4.5% in 2022 and 3.2% in 2023, the OECD said in its latest economic outlook. The OECD did not produce estimates for 2023 until now.

“The global recovery continues to progress, but has lost momentum and is becoming increasingly imbalanced,” said the OECD.

While the OECD said it was “cautiously optimistic” about the recovery, it warned that health, high inflation, supply chain bottlenecks, and potential policy missteps are “all key concerns”.

Companies are struggling to meet a post-pandemic snapback in customer demand, causing inflation to shoot up worldwide as bottlenecks have emerged in global supply chains.

“The top policy priority remains the need to ensure that vaccines are produced and deployed as quickly as possible throughout the world, including booster doses,” the OECD said.

“The recovery will remain precarious and uncertain in all countries until this is achieved,” it said.

“The main risk, however, is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected.”

Provided that that risk did not materialise, inflation in the OECD as a whole was likely close to peaking at nearly 5% and would gradually pull back to about 3% by 2023, the Paris-based organisation said.

Against that backdrop, the best thing central banks can do for now is wait for supply tensions to ease and signal they will act if necessary, the OECD said.

Federal Reserve chair Jerome Powell said on Tuesday that the US central bank should consider winding down of its large-scale bond purchases faster amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.

In the US, the OECD forecast the world’s biggest economy would grow 5.6% in 2021, 3.7% in 2022 and 2.4% in 2023, down from previous projections of 6.0% in 2021 and 3.9% in 2022.

The outlook for China was also less optimistic, with growth forecast at 8.1% in 2021 and 5.1% in both 2022 and 2023 whereas previously the OECD had expected 8.5% in 2021 and 5.8% in 2022.

However, the outlook was slightly more upbeat for the eurozone than previously expected with growth expected at 5.2% in 2021, 4.3% in 2022 and 2.5% in 2023 compared with previous forecasts of 5.3% in 2021 and 4.6% 2022.

Meanwhile, OECD chief economist Laurence Boone says it could cost as little as $50bn to save the global economy, Bloomberg reports.

That’s the amount needed to vaccinate the world, a measure that’s key to ending the pandemic and tackling the imbalances “plaguing the recovery”, according to  Boone.

“When you balance things out, $10-trillion for supporting the economy going through the pandemic compared with a tiny $50bn to bring the vaccine to the entire world population, that looks completely disproportionate,” she told Bloomberg Television in an interview on Wednesday.

The first number is the amount spent by G20 countries to mitigate the economic effects of Covid-19. The emergence of Omicron increases the uncertainty already weighing on the global economic outlook and highlights vaccination shortcomings, she said.  With Bloomberg

Reuters