by Leigh Thomas
PARIS, June 8 (Reuters) – The war in Ukraine has significantly clouded the outlook for the global economy but it can avoid a period of stagflation comparable to that of the 1970s, the OECD said on Wednesday, which lowered its growth forecasts and raised its inflation estimates.
The Organization for Economic Co-operation and Development now forecasts global gross domestic product (GDP) growth of 3% this year, 1.5 points lower than forecast in December.
And it expects the slowdown to continue in 2023 with global growth now expected at just 2.8%, down from 3.2% forecast six months ago.
“The war in Russia is indeed taking a heavy toll on the world economy,” said its secretary general, Mathias Cormann, at a press conference.
“Global growth will be much weaker, and inflation stronger and more persistent,” he added, adding that the OECD did not foresee a recession.
At the same time, inflation in OECD countries should peak at 8.5% this year before returning to 6.0% next year. The OECD previously predicted a peak at 5% and a return to 3% in 2023.
Despite the slowdown in growth and the acceleration in the rise in prices, the OECD considers the risk of stagflation to be limited, a situation combining low growth and high inflation that the world has not experienced since the mid-1970s, after the first oil shock.
Developed economies, in particular, in which the services sector has acquired a much greater weight than it was then, are much less dependent on energy prices and the central banks, having gained in independence, have the means superior goods to fight inflation.
“To mitigate the cost of inflation, the burden must be distributed between profits and wages, which means that employers and employees must negotiate the sharing of this cost fairly and avoid a wage/price spiral”, said the organization’s chief economist, Laurence Boone.
CHINESE GROWTH EXPECTED UNDER 5% IN 2022 AND 2023
The OECD also believes that the tightening of monetary policies is justified for the central banks of countries suffering from high inflation such as those of Eastern Europe and the United States.
The Paris-based organization now expects the US economy to grow 2.5% this year and then 1.2% next year, up from 3.7% and 2.4% respectively in its December forecast. .
China’s economy, affected by large-scale lockdowns in recent months aimed at curbing the COVID-19 outbreak, is expected to grow 4.4% in 2022 and 4.9% in 2023, compared to 5.1% in the two cases foreseen before.
That of the euro zone, more exposed to energy imports from Russia and to the consequences of the war in Ukraine, should see its growth return to 2.6% this year and 1.6% only next year, against 4, 3% and 2.5% respectively.
For France, the OECD now forecasts growth of 2.4% this year and 1.4% next year and inflation rates of 5.2% and 4.5% respectively.
French Economy Minister Bruno Le Maire confirmed on BFMTV on Wednesday that the government would present new growth forecasts in a few weeks, with the current forecasts of 4% for 2022 and 2.3% for 2023 having been established before the outbreak of war in Ukraine.
(Report Leigh Thomas, French version Marc Angrand, edited by Kate Entringer)