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OECD slashes growth outlook, but sees limited stagflation risk -Breaking


© Reuters. FILE PHOTO. U.S. Secretary of State Antony Blinken listens to Mathias Cormann speak during a briefing held at the OECD Ministerial Council Meeting.

PARIS (Reuters) – The conflict in Ukraine has affected the growth prospects of the world’s economy, even though it should not suffer from a period of 1970s-style stagflation. This was stated by the OECD on Wednesday. It lowered its growth forecasts, and raised its inflation estimates.

The global economy will grow by 3% in 2013, a much lower rate than what was expected at 4.5% when the Organisation for Economic Cooperation and Development (OECD) last updated its forecasts in Dec.

The Paris-based economic forum stated in the latest Economic Outlook that growth will slow down further next year. This is down from 3.2% previously forecast.

Inflation is expected to rise to 8.5% in OECD countries this year, before falling to 6.0% by 2023. This will make it difficult to get any relief from rising prices. Previously, the OECD expected that inflation would peak at 5% and then slowly decline to 3% by 2023.

Despite lower growth prospects and higher inflation, the OECD considered there was a low risk of stagflation. This is in contrast to the situation seen during the 1980s when runaway inflation caused a surge in unemployment and triggered an oil price shock.

Particularly, the developed economies are more dependent on services now than they were in 1970s. Central banks are able to combat inflation more freely, and are not bound by governments that are more worried about unemployment.

According to the OECD, there is strong support for a steady reduction in monetary stimulus in countries with high inflation like the United States or eastern Europe.

The U.S. economy saw a 2.5% increase this year, then a slowing of 1.2% in 2023. This is less than the previous growth forecasts of 3.7% and 2.4% for 2023.

China’s economy is expected to grow 4.4% and 4.9% this year respectively, rather than the 5.1% that was previously forecast in each of these years.

Much more vulnerable to Russian energy imports, and the aftermath of war in Ukraine. The eurozone economy grew 2.6% this year, and 1.6% 2023. That’s down from expectations of 4.3%, and 2.5%, respectively.