The Russian war in Ukraine and China’s zero COVID-19 policy will continue to fuel rapid inflation this year while dragging down global economic growth, the Organization for Economic Cooperation and Development said Wednesday.
The Paris-based OECD became the latest international institution to release a pessimistic forecast for global growth this week, underscoring the increasingly dark economic outlook. The World Bank and the International Monetary Fund have issued similar downgrades to their forecasts in recent weeks.
HIGH INFLATION COULD BE ‘PAINSTAKINGLY SLOW’ TO COME DOWN
The OECD now expects the global economy to expand 3% in 2022 – a sharp drop from the 4.5% rate it predicted in December. The global economy is projected to decelerate further in 2023, growing just 2.8%. In the U.S., growth is expected to cool off to 2.5% this year and 1.2% in 2023.
The report comes amid the Ukraine war, which has pushed the global cost of essential commodities like food and fertilizer to the highest level in years, as well as Draconian lockdowns in China that are intended to stop the spread of COVID-19 but that further disrupted manufacturing and supply chain disruptions.
“Russia’s war is indeed imposing a heavy price on the global economy,” OECD Secretary-General Mathias Cormann said during a press conference in Paris. “Global growth will be substantially lower with higher and more persistent inflation.”
Inflation is now forecast at 8.8% for the OECD’s 38 member countries – which includes the U.S., United Kingdom and most European nations – nearly double the previous estimate.
As is often the case, the OECD warned that high prices, including soaring costs for food and energy, will hit low-income countries the hardest.
“The war is really sending shockwaves all the way to Africa and the Middle East,” OECD chief economist Laurence Boone said. “The war could spark starvation. It could cause social unrest and political turmoil.”
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Still, the OECD is not forecasting a recession, although it highlighted numerous downside risks to the outlook. And unlike the World Bank, the OECD sees a limited risk of 1970s-style stagflation, the combination of economic stagnation and high inflation that is characterized by soaring consumer prices as well as high unemployment.
The phenomenon ravaged the U.S. economy in the 1970s and early 1980s, as spiking oil prices, rising unemployment and easy monetary policy pushed the consumer price index as high as 14.8% in 1980, forcing Fed policymakers to raise interest rates to nearly 20% that year.