OECD cuts global growth forecast on war in Ukraine and China’s zero Covid policy

The OECD estimates that global gross domestic product [or GDP] will reach 3% in 2022 – a deterioration of 1.5 percentage points compared to a projection made in December.

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The Organization for Economic Co-operation and Development has become the latest international body to lower its forecast for global growth this year, but has played down the possibility of a prolonged period of so-called “stagflation”.

The OECD estimates that global GDP will reach 3% in 2022, down 1.5 percentage points from a projection made in December.

“The invasion of Ukraine, as well as the closures of major cities and ports in China due to the zero COVID policy, have generated a new series of negative shocks,” the Paris-based organization said in its statements on Wednesday. latest economic outlook.

Russia’s invasion of Ukraine has massive ramifications for the global economy, but China’s zero Covid policy – a strategy Beijing uses to control the virus with strict lockdowns – is also a drag on global growth being given the country’s importance in international supply chains and global consumption.

The World Bank said on Tuesday it had also become more negative on the outlook for global growth. The institution said global GDP would hit 2.9% this year, down from its forecast of 4.1% in January.

The OECD said in its report on Wednesday that the downgrade, in part, “reflects deep recessions in Russia and Ukraine.”

“But growth is expected to be significantly weaker than expected in most economies, particularly in Europe, where an embargo on oil and coal imports from Russia is factored into projections for 2023,” he said. he declares.

At the end of May, the European Union decided to impose an oil embargo on Russia, after agreeing the previous month to also halt the country’s coal purchases. The bloc has been heavily dependent on Russian fossil fuels and cutting off some of those supplies overnight will have a significant economic impact.

Nevertheless, the euro zone, the region of 19 nations that share the euro, and the United States do not differ much in terms of economic prospects. The OECD said the former will rise 2.6% this year and the United States will rise 2.5%.

For the UK, where the cost of living crisis is also an economic issue, GDP is expected to rise to 3.6% this year before collapsing to zero next year.

“Inflation [in the U.K.] will continue to rise and peak at over 10% at the end of 2022 due to continued labor and supply shortages and high energy prices, before gradually declining to 4.7% by the end of 2023,” the OECD said.

The global macroeconomic situation has darkened for emerging economies, especially because they are expected to be the most affected by 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. China is expected to grow 4.4% this year, India 6.9% and Brazil 0.6%.

No stagflation?

Mathias Cormann, Secretary-General of the OECD, said that despite the difficult economic environment, the global economy is unlikely to head into a period of stagflation – where an economy experiences high inflation and high unemployment alongside stagnant demand like in the 1970s.

“We see parallels with the experience of the 1970s but we don’t use the term stagflation, we don’t think that’s the right term to describe what we’re seeing in the global economy right now,” he said. he told CNBC’s Charlotte Reed.

“Essentially most countries have been through four quarters of very strong growth and yes we have inflation, we expect high inflation to last longer but we expect it to go down. mitigates throughout the second half of 2022 through the end of 2023,” Cormann added. .

The World Bank said on Tuesday the risks of potential stagflation were growing and warned it would make life for people in middle- and low-income economies even harder.

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