OECD: Global growth has lost momentum
Global growth has lost momentum, and indicators in many countries point to a period of continued subdued growth.
That’s what the OECD writes in an interim forecast.
The OECD predicts that global GDP will increase by 3.0 percent this year and 2.2 percent next year. In the June forecast, 3.0 percent was predicted this year and 2.8 percent next year.
The forecast for the USA has been reduced to +1.5 percent this year (2.5) and +0.5 percent next year (1.2). For the euro area, the forecast is +3.1 (2.6) and +0.3 percent (1.6), respectively.
The OECD notes that global growth is thus falling to a rate clearly lower than before Russia’s invasion of Ukraine.
“The war has pushed up energy and food prices significantly, exacerbating inflationary pressures at a time when the cost of living was already rising rapidly around the world,” writes the OECD.
Growth in the United States is dampened and in several countries in Europe GDP may decrease during the winter months. Growth in China is expected to slow to 3.2 percent this year in the wake of the shutdowns due to covid-19 and weakness in the property market, but policy support is expected to lift growth to 4.7 percent in 2023.
Inflation has become broad based in many countries.
“Tighter monetary policy and easing of bottlenecks should moderate inflationary pressures next year, but higher energy prices and higher labor costs are expected to slow the pace of decline,” they write.
The Federal Reserve is expected to raise interest rates to 4.5-4.75 percent and the Bank of England to 4.25 percent next year.
In Europe, the ECB faces a challenging environment given the uncertain outlook and broad inflationary pressures. The policy rate is expected to rise to 4 percent in 2023, while they use the flexibility of reinvestments to stop fragmentation.
In Japan, where the underlying price pressure remains mild, the expansionary monetary policy is expected to remain.
Inflation rate in the euro areat is expected to drop from 8.1 percent this year to 6.2 percent next year, and in the United States from 6.2 to 3.4 percent. For the developed countries within the G20, a decline is expected from 6.2 percent this year to 4.0 percent next year.
There is great uncertainty surrounding the forecasts. A wider energy shortage, mainly for gas, could reduce growth in Europe by a further 1.25 percentage points in 2023, and reduce global growth by 0.5 percentage points, while inflation in the euro area could be pulled up by 1.5 percentage points.
“Further interest rate increases are needed in most of the major economies to anchor inflation expectations and ensure that inflationary pressure is dampened in a sustained manner,” writes the OECD.
They state that fiscal policy needs to be used to alleviate the effects on households and businesses from the high energy prices. But this support should be temporary, and concentrated on the more vulnerable, and withdrawn when the pressure on energy prices subsides. It should also encourage reduced energy use.
“Short-term fiscal action to help living standards should take into account the need to reduce further persistent stimulus in a time of high inflation and secure sustainable public finances,” writes the OECD.