OECD cuts global GDP forecast amid Covid-19 variant concerns

The main risk to an otherwise upbeat global economic outlook is that the current inflation spike proves longer and rises further than currently expected, the OECD said on Wednesday.

Global growth is set to hit 5.6% this year before moderating to 4.5% in 2022 and 3.2% in 2023, the Organisation for Economic Cooperation and Development said in its latest economic outlook.

That was little changed from a previous forecast of 5.7% for 2021, while the forecast for 2022 was unchanged. The OECD did not produce estimates for 2023 until now.

With the global economy rebounding strongly, companies are struggling to meet a post-pandemic snap-back in customer demand, causing inflation to shoot up worldwide as bottlenecks have emerged in global supply chains.

Like most policymakers, the OECD said that the spike was expected to be transitory and fade as demand and production returned to normal.

"The main risk, however, is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected," the OECD said.

Provided that that risk did not materialise, inflation in the OECD as a whole was likely close to peaking at nearly 5% and would gradually pull back to about 3% by 2023, the Paris-based organisation said.

Against that backdrop, the best thing central banks can do for now is wait for supply tensions to ease and signal they will act if necessary, the OECD said.

Federal Reserve Chair Jerome Powell said on Tuesday that the U.S. central bank should consider winding down of its large-scale bond purchases faster amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.

In the United States, the OECD forecast the world's biggest economy would grow 5.6% this year, 3.7% in 2022 and 2.4% in 2023, down from previous projections of 6.0% in 2021 and 3.9% in 2022.

The outlook for China was also less optimistic, with growth forecast at 8.1% in 2021 and 5.1% in both 2022 and 2023 whereas previously the OECD had expected 8.5% in 2021 and 5.8% in 2022.

However, the outlook was slightly more upbeat for the European zone than previously expected with growth expected at 5.2% in 2021, 4.3% in 2022 and 2.5% in 2023 compared with previous forecasts of 5.3% in 2021 and 4.6% 2022. It wouldn’t be too bad for Europe. 

50-bn to vaccinate the world: 

It could cost as little as $50 billion to save the global economy.

That’s the amount needed to vaccinate the world, a measure that’s key to ending the pandemic and tackling the imbalances “plaguing the recovery,” according to OECD Chief Economist Laurence Boone. 

“When you balance things out, $10 trillion for supporting the economy going through the pandemic compared with a tiny $50 billion to bring the vaccine to the entire world population, that looks completely disproportionate,” she told Bloomberg Television in an interview Wednesday. The first number is the amount spent by Group of 20 countries to mitigating the economic impact of Covid-19.

The emergence of omicron increases the uncertainty already weighing on the global economic outlook and highlights vaccination shortcomings, she said. While the Paris-based organization didn’t directly account for that strain in its new forecasts, it emphasized continued pandemic risks and urged governments to address low inoculation rates in some regions so as not to create “breeding grounds for deadlier strains.”

On top of tighter virus restrictions including renewed lockdowns in some parts, OECD members are battling soaring inflation and hold-ups in global supply chains that are starving factories of components.

Meanwhile, Britain is headed for the fastest growth in the Group of Seven major economies this year and next but will suffer a setback if supply shortages are allowed to worsen, the OECD said.

A lack of workers to fill open jobs and persistent disruptions in the flow of goods across borders could force companies to reduce output, damaging the pace of recovery in the economy, the Paris-based researcher concluded in a report on Wednesday.