OECD cuts global growth outlook but sees limited stagflation risk

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.