The OECD cut down the global economic growth rate, advising central banks not to "act rashly", inflation is only temporary

The Paris-based "Rich Countries Club" Economic Cooperation Organization (OECD) released its Global Economic Outlook report on Wednesday, December 1, slightly lowering global GDP growth forecasts for this year, lowering economic growth forecasts for the United States and the euro area this year and next, and sharply raising the inflation outlook of developed countries this year.

New virus variants and more persistent, more aggressive inflation are major risks to the global economy, the report said.

Specifically, the OECD lowered its global GDP growth forecast for 2021 to 5.6% from 5.7% given in September, maintaining global economic growth unchanged at 4.5% in 2022 and giving an economic growth forecast of 3.2% for 2023 for the first time:

Among them, the US GDP growth rate is expected to be 5.6% in 2021, 6% in September, and 3.7% in 2022, lower than the previous forecast of 3.9%, and economic growth is expected to slow further to 2.4% in 2023. Eurozone GDP is expected to grow by 5.2 percent in 2021, down from 5.3 percent expected in September, and 4.3 percent in 2022, down from 4.6 percent previously expected, with growth expected to slow further to 2.5 percent in 2023. The UK, which is expected to be the first among advanced economies to raise interest rates, is expected to grow by 6.9% this year, up from 6.7% expected in September, and is expected to grow by 4.9% next year, down from the previous expectation of 5.2%, but will still be the best growth rate in the G7 countries this year and next.

The OECD expects inflation in major global countries to peak at the end of this year or early next year, with average consumer price inflation in the US in 2022 or 4.4%, well above the 3.1% expected in September, and eurozone inflation at 2.7% next year compared to 1.9% previously expected. U.S. inflation is expected to fall back to 2.5 percent in 2023, still above the Fed's 2 percent target, and eurozone inflation to fall to 1.8 percent, or below target.

The group believes UK inflation will peak at 4.9% in mid-next year and then fall back to 2.4% at the end of 2023, slightly above the central bank's target. If nothing else, OECD headline inflation could peak close to 5 percent next year and gradually fall back to around 3 percent in 2023. Average inflation in G20 countries is likely to rise to 4.4 percent next year and then fall to 3.8 percent in 2023.

Laurence Booned, chief economist at the OECD, said that imbalances between supply and demand in energy, semiconductors and some other commodities, as well as workers, have prolonged periods of high inflation:

"The main risk right now is that inflation continues to rise unexpectedly, with spikes both higher than expected and higher than expected, forcing major central banks to tighten monetary policy earlier than expected."

She, like most forecasters, including the Federal Reserve, believes that as demand stabilizes, supply bottlenecks recede, and people return to the labor market, price increases should peak by the end of the year, and high inflation is a temporary phenomenon.

What's more, if the COVID-19 Opichron variant virus invalidates vaccines and leads to stricter lockdowns, it could hit the economy harder and there is a risk of a sudden drop in prices.

As a result, the OECD advises central bankers to "stay calm" and should not rush to tighten policy, although the slowing global economic recovery, persistent supply-demand imbalances, and soaring inflation and longer-than-expected inflation have cast a shadow over the outlook and presented monetary officials with "considerable policy challenges":

"The Omicron variant virus increases uncertainty and risk, and in the current circumstances, the best thing central banks can do is wait for supply tensions to ease and signal action if necessary." If the impact of the new variant is severe, the price may fall. ”

She also endorsed the move by the U.S. and the Bank of England to tighten policy, saying the central banks were already cautious and that inflationary pressures in the U.S. and the U.K. were more persistent and required a slight tightening of monetary policy.

But she also warned that Omiqueron could pose a threat to the economic recovery, that the downside risks to the global economic outlook were greater than upside risks, and that higher global inflation would persist longer than previously anticipated, making it increasingly risky for households and businesses to get used to faster price increases. Inflation expectations and wages, if they rise sharply in tandem to cope with high costs, could open a vicious circle for rising prices:

"It is unclear whether the Omilon variant will weaken the effectiveness of the COVID-19 vaccine. While governments wait for a scientific judgment on the issue, a new round of supply chain disruption could lead to higher inflation, though the impact on economic growth is likely to be modest. ”

The OECD therefore calls for the most urgent task now not to be central bank monetary policy, but for governments and businesses to take the lead in deploying COVID-19 vaccines globally as soon as possible, urging that low vaccination rates in certain regions be addressed so as not to "breed more deadly strains":

"The G20 countries spent a total of $10 trillion to support their economies during the pandemic, while the cost of saving the global economy could be as low as $50 billion, or just 0.5 percent. The $50 billion spent on getting everyone in the world vaccinated is key to ending the outbreak and addressing the imbalances that plague the recovery. ”

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