In its latest review, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022, in the face of the Russia-Ukraine war.
The organization, however, sees limited risks of 1970s-style stagflation.
Key takeaways
OECD sees global GDP growth of 3.0% in 2022, 2.8% in 2023 (vs 4.5% in 2022 and 3.2% in 2023 previously).
Sees US growth of 2.5% in 2022 and 1.2% in 2023 (vs 3.7% in 2022 and 2.4% in 2023 previously).
Sees euro area growth of 2.6% in 2022 and 1.6% in 2023 vs 4.3% in 2022 and 2.5% in 2023 previously).
Sees Chinese growth of 4.4% in 2022 and 4.9% in 2023 vs 5.1% in 2022 and 2023 previously).
Inflation to peak in 2022 at 8.5% in OECD as a whole before receding gradually to 6% in 2023
Sees Japanese growth of 1.7% in 2022 and 1.8% in 2023 vs 3.4% in 2022 and 1.1% in 2023 previously).
Removing accommodation is warranted worldwide, but with caution in Europe where supply-driven inflation dominates.
Negative supply shock from oil prices should have less of a stagflationary impact than in the mid-1970s.
Wherever inflation is driven by over-buoyant demand, as in the US monetary policy can tighten faster.
Market reaction
Risk sentiment remains tepid, reflective of the 0.50% drop in the S&P 500 futures. Global growth concerns flagged by the World Bank and the OECD weigh on the investors’ sentiment while boosting the safe-haven US dollar to near 102.80 levels against its main competitors.