OECD: Inflation the main risk to the outlook for the global economy

The main risk for the global economic outlook is that the current rally in inflation will last longer, with prices exceeding estimates, warns the Organization for Economic Co-operation and Development (OECD) in an analysis released today.

Global growth is expected to reach 5.6% this year, to slow to 4.5% in 2022 and 3.2% in 2023, the OECD said in its report on the economic outlook. In its previous estimate, the Agency set growth for 2021 at 5.7%, while the forecast for 2022 remained unchanged. The OECD had not given a forecast for 2023 until now.

With the global economy recovering strongly from the coronavirus crisis, businesses are struggling to meet rising demand, causing inflation to skyrocket, while a price rally has fueled serious disruptions in global supply chains.

The OECD estimates that inflation will be a transitional phenomenon and will decline as demand and production return to more normal levels.

“The main risk, however, is that inflation will continue to pick up in terms of uptrend, forcing central banks to tighten their monetary policy earlier and to a greater extent than expected,” the agency said.

If these risks are not met, inflation in OECD countries is expected to peak near 5% to fall to 3% by 2023, the agency said.

In this context, the best thing central banks can do is wait for supply chain disruptions to subside, while confirming that they are ready to take action if needed, he notes.

For the US, the OECD forecasts growth of 5.6% this year, 3.7% in 2022 and 2.4% in 2023, up from a previous estimate of 6.0% in 2021 and 3.9% in 2022.

For China, the Agency places growth at 8.1% in 2021 and 5.1% in 2022 and 2023, up from 8.5% in 2021 and 5.8% in 2022 previously.

For the Eurozone, estimates are for growth at 5.2% in 2021, 4.3% in 2022 and 2.5% in 2023 compared to the previous forecast of 5.3% in 2021 and 4.6% in 2022 .