The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine

OECD Interim Economic Outlook warns of pervasive global economic slowdown

 

"The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine..."

The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook.

The Outlook projects global growth at a modest 3% this year before slowing further to just 2.2% in 2023.  This is well below the pace of economic growth projected prior to the war and represents around USD 2.8 trillion in foregone global output in 2023.

The war has further pushed up energy prices, especially in Europe, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world due to lingering impacts of the Covid-19 pandemic.  With businesses across many economies passing through higher energy, transportation and labour costs, inflation is reaching levels not seen since the 1980s, forcing central banks to rapidly tighten monetary policy settings faster than anticipated.

The inflation and energy supply shock stemming from the war has led the OECD to revise its previous growth projections downward worldwide.  Annual GDP growth is projected to slow to around 1/2% in the United States in 2023, and 1/4% in the euro area, with risks of deeper declines in several European economies during the winter months.  Growth in China has also been hit and is expected to drop to a projected 3.2% in 2022.  Except the 2020 pandemic, this will be the lowest growth rate in China since the 1970s.

Inflation is projected to recede gradually through 2023 in most G20 countries as tighter monetary policy takes effect and global growth slows.  Headline inflation is projected to ease from 8.2% this year to 6.6% in 2023 in the G20 economies, and fall from 6.2% this year to 4% in 2023 in the G20 advanced economies.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine.  GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said during a presentation of the Outlook.  “Inflationary pressures that were already present as the global economy emerged from the pandemic have been severely aggravated by the war.  This has further driven rising energy and food prices that now threaten living standards for people across the globe.”

The OECD points to substantial uncertainty about the economic outlook, with significant downside risks.  These include the possibility of further food and energy price spikes, which could push many people into poverty, as well as the possibility of gas shortages as winter progresses in the Northern hemisphere.  Reducing energy consumption and diversifying supply sources will be critical to avoid shortages, which would push global energy prices up, damage confidence, and likely worsen financial conditions and require a temporary period of enforced reduction of gas use by businesses.

Taken together, these shocks could reduce growth in the European economies by over 1¼ percentage points in 2023, relative to the Outlook’s central projection, and raise inflation by over 1½ percentage points.  This would push many countries into a full year recession in 2023, while GDP growth would also be weakened in 2024.

Other key risks are that the ongoing adjustments in Chinese property markets - combined with the high level of corporate debt in China and continuation of the country’s “zero-Covid” policy - could generate a more severe slowdown in the world’s second largest economy than projected.  This risk comes on top of continued costs from global supply chain pressures, and possible debt crises and financial contagion in many emerging-market and low-income economies.  

Further monetary policy tightening will be needed in most major economies to ensure that inflation pressures are reduced durably.  This will need to be calibrated carefully given uncertainty about the speed at which higher interest rates will take effect and spillovers from tightening in the rest of the world.

Fiscal support can help cushion the impact of high energy costs on households and companies, but should be concentrated on aiding the most vulnerable and preserve incentives to reduce energy consumption.  Fiscal actions to cushion living standards must avoid persistent stimulus at a time of high inflation.  Means-tested transfers to households broadly meet this criteria.

Managing the energy crisis requires renewed efforts to secure alternative supplies while ensuring all sectors of the economy are incentivised to reduce demand.  There is also an urgent need for governments to accelerate investment in energy security and invest in the green transition.

For the full report and more information, visit the Economic Outlook online. Media queries should be directed to the OECD Media Office (+33 1 4524 9700)

26/9/2022

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More brilliant moves for the Eastern Caribbean Central Bank (ECCB)

By Dr Isaac Newton

Since its inception in July 5, 1983, the Eastern Caribbean Central Bank (ECCB) has used its resources impressively. It has met its obligation in monitoring monetary policy and assisted governments in managing risks.

Without exhausting its possibilities, the ECCB displayed acumen in raising consciousness about fiscal efficiency. By providing qualitative and qualitative tools to facilitate economic forecasting, the Bank’s yearly review of the economic performance of the Organization of Eastern Caribbean States (OECS) has nudged citizens to think about various approaches to socio-economic development of the sub-region.

Today, the Bank continues to help finance ministers manage debt. It still provides tools for governments to navigate capital markets. And it pilots helpful public education and awareness programs.

In fact, the effectiveness of its community outreach initiatives is credible. Above all, the Bank has protected the international value and kept confidence in the EC Dollar pegged to the US dollar at a parity of EC 2.70.

Despite the ECCB’s direct and indirect investments in the social success of the sub-region, some view it as a refuge that conceals political underdevelopment. Whereas the Bank has advocated for productive investments behind closed doors, one has not yet heard its voice condemning unproductive investments by regional governments with short-term bread and butter needs.

Perhaps it is because the OECS has a high tolerance for quick solutions. What’s even more worrisome is that we haven’t moved beyond our addiction to a culture of dependency, which constitutes the very foundation of our inability to advance ourselves.

At the 72nd meeting of Monetary Council held in February, leaders committed to fresh insights and new pragmatics. These are likely to unlock the financial bowels of our people to produce balanced growth.

As the Bank seeks to help the leaders overcome the shattering changes confronting the union, here are five critical things it can do in these recession times:

• Provide immediate short-term financialhelp to various priority sectors—agriculture, export, and small business to help them circumvent the crisis. The Bank presence should be flexible to the economic growth and political stability of the union.

• Reach out to the talent pool of the diasporas via long-distance or in person consultancies, and invite our brightest and best minds to become more engaged in regional advancement through sweat equity and exchange of intellectual capital.

• Devise a comprehensive model for finding synergy with transnational corporations. Assist governments to see beyond jobs creation to value proposal. Help public official and entrepreneurs exploit sustained industries that can be linked to tourism, research, green energy, and financial services in order to harness national resources, and increase revenue generation along the way.

• Inspire thought leaders and grassroots intelligentsias to delve into the potency of our resources (brilliant people, food feeding land, unexplored medically induced plant life, sun, sea, and natural beauty) to make long-term investments that can create capital.

• Design internships for finance ministers to tease out the best macroeconomic approach to sustainable development of the union, and provide operational frameworks of accountability, transparency and inclusiveness to identify the best talent required to achieve fiscal flexibility and economic goals.

The only way to create new momentum is for the ECCB to take governments and people on a development action plan. This requires a specific process that will induce political will and collective energies, and it will take personal meditation and institutional boldness to lead us to brighter days.

Perhaps the answer to the logic of politics is in harnessing the logic of economics. According to Winston Dookeran, former finance minister of Trinidad and Tobago, power, politics and performance in the Caribbean is about leaders finding durable solutions.

Dookeran argues that Small Island States can take advantage of a knowledge based world, by drawing on effective regionalism, financial structures and inspirational leadership.

I could see the ECCB focusing more on optimal development, on building safer regional alignment, and on executing follow-though success in the twenty-first century. Perhaps this undertaking will instill in each one of us a mind-set to achieve greater things.

July 12, 2012

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