The Organization for Economic Cooperation and Development has joined the growing chorus predicting an economic downturn approaching, although it is downplaying the possibility of a longer period of stagflation. In a new report, it downgraded its existing estimate of global GDP in 2022 1.5%, to 3%.
In it’s latest economic analysis it wrote, “The invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-COVID policy, has generated a new set of adverse shocks.”
It cited the war in Ukraine as a massive influence on the global economy, but also called out China’s zero-Covid policy as a drag on global production due to China’s vital importance to the production of so many different products, components, and precursors.
The World Bank has also downgraded expectations of global growth on Tuesday, estimating global GDP would be 2.9% this year, down from its 4.1% prediction in January.
For its part, the OECD said its downgrade, “reflects deep downturns in Russia and Ukraine. But growth is set to be considerably weaker than expected in most economies, especially in Europe, where an embargo on oil and coal imports from Russia is incorporated in the projections for 2023.”
While the European Union moved to impose an oil embargo on Russia following the military action in Ukraine, the Bloc is also heavily dependent on Russian oil. So the elimination of this source of energy will have significant economic impacts.
Despite its geographic remoteness, and reduced dependence on Russian fuel, the outlook for the United States is very similar. While the OECD predicted the Euro-zone’s growth at 2.6%, it predicted the US would only grow by 2.5%.
Taken alone, the United Kingdom does somewhat better at 3.6% this year, before dropping to zero next year.
The OECD said, “Inflation [in the U.K.] will keep rising and peak at over 10% at the end of 2022 due to continuing labour and supply shortages and high energy prices, before gradually declining to 4.7% by the end of 2023.”
Emerging economies fare worse in the OECD’s predictions, mainly because their predictions entail food shortages. “In many emerging-market economies the risks of food shortages are high given the reliance on agricultural exports from Russia and Ukraine,” the OECD said.
Among other nations, China is predicted to grow 4.4%, India’s growth is pegged at 6.9%, and Brazil is seen growing by a marginal 0.6%.
Regardless of the economic slowdown they see, Mathias Cormann, secretary-general of the OECD says they do not see a coming period of stagflation, featuring high inflation and high unemployment, combined with stagnant demand.
He said in an interview, “We do see some parallels with the experience in the 1970s but we do not use the term stagflation, we do not believe it is the right term to describe what we are observing in the global economy now. Essentially most countries have gone through four quarters of very strong growth and yes we have inflation, we expect elevated inflation to last for longer, but we do expect it to subside throughout the second half of 2022 to the end of 2023.”
Not everyone agrees however. The World Bank has said the risk of stagflation is growing and if it arrives, the lives of those in middle- and low-income economies will become even harder.
