OECD Cuts Growth Outlook But Sees Lower Risk Of Stagflation

Even though the global economy should avoid a bout of 1970s-style stagflation, the Organization for Economic Cooperation and Development (OECD) cut its growth forecasts and raised its inflation estimates, Leigh Thomas reported for Reuters.

Photo Insert: Previously, the OECD predicted that inflation would peak at 5% before gradually declining to 3% in 2023.

The global economy is expected to grow by 3% this year, down from 4.5 percent predicted when the OECD last updated its forecasts in December. Growth will then slow further next year, to 2.8 percent, down from 3.2 percent previously forecast, according to the Paris-based policy forum's latest Economic Outlook.

"Russia's war is indeed posing a heavy price on the global economy," OECD Secretary General Mathias Cormann told a news conference.

"Global growth will be substantially lower with higher and more persistent inflation," he said, adding the OECD was not forecasting recession although there were numerous downside risks to the outlook.

Meanwhile, any immediate relief from rising costs is unlikely, with OECD inflation expected to peak at 8.5 percent this year before falling to 6.0 percent in 2023.

Previously, the OECD predicted that inflation would peak at 5% before gradually declining to 3% in 2023. Despite the lower growth and higher inflation forecast, the OECD saw a limited risk of "stagflation" similar to that seen in the mid-1970s, when an oil price shock caused runaway inflation and surging unemployment.

Developed economies, in particular, are much more service-driven and less energy-intensive than in the 1970s, and central banks have more freedom to fight inflation, independent of governments more concerned with unemployment.

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