OECD projects sharp growth decelerationBY ANDREW MCKEAN | THURSDAY, 9 JUN 2022 12:44PM
Read more: OECD, Inflation, Australia, Economic outlook, Russia, Covid, GDP, Laurence Boone, Mathias Corman, Ukraine
Russia's invasion of Ukraine immediately slowed the recovery from the Covid pandemic and set the global economy on a course of lower growth, the OECD said.
The intergovernmental organisation's latest economic outlook said global growth would decelerate to around 3% this year and to 2.8% in 2023. The previous economic outlook released last December expected a rebound of 4.5% in 2022 and 3.2% in 2023.
Providing a snapshot of Australia's economy, the OECD said: "The Australian economy is set to continue its solid recovery from the pandemic after having withstood the recent resurgence of Covid cases as well as severe flooding in the states of Queensland and New South Wales."
Unlike nearly all other developed countries, Australia's GDP growth projections for 2022 increased slightly from the OECD's December estimate. Though, its inflation projection grew from 2.7% to 5.3% over this same period.
"Wage and price pressures will rise given the already tight labour market and the strains on global supply chains, before moderating in 2023," the report said.
This same OECD December report predicted that global inflation would peak in late 2021 which has subsequently proven to be wrong. Instead, inflation has continued to rise, eroding household incomes and spending, hitting vulnerable households and emerging-market economies particularly hard.
"Further increases in food and energy prices and persisting supply-chain bottlenecks are key factors causing consumer price inflation to peak at higher levels and remaining high for longer than previously projected," the OECD economic outlook said.
"In some advanced economies, inflation is now expected to reach levels not seen since the 1970s."
Into 2023, the OECD anticipated that core inflation would remain at or above central bank target ranges in many major economies, however, cost pressures should start to ease because of rising interest rates.
OECD secretary-general Mathias Corman said: "Countries worldwide are being hit by higher commodity prices, which add to inflationary pressures and curb real incomes and spending, dampening the recovery."
"This slowdown is directly attributable to Russia's unprovoked and unjustifiable war of aggression, which is causing lower real incomes, lower growth and fewer job opportunities worldwide."
OECD chief economist Laurence Boone added: "The Outlook is sobering and the world is already paying the price for Russia's aggression. The choices made by policymakers and citizens will be crucial to determining how high that price will be and how the burden will be shared."
The intergovernmental organisation advised that significant further monetary policy tightening was needed in order to limit inflation's rise.
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