OECD forecasts 'fading' inflation by 2022

The Organisation for Economic Co-operation and Development said on Wednesday the global economic recovery from the coronavirus pandemic was losing momentum due to “risks and uncertainties” amplified by the emergence of the Omicron variant and stronger-than-anticipated inflation.

Despite the risk factors, the group revealed that output in OECD countries has now surpassed where it was in late-2019 and is gradually returning to the path expected before the pandemic.

However, economic activity in lower-income economies, particularly ones where Covid vaccination rates are still low, is at risk of lagging behind.

As a result, the OECD is projecting global GDP growth of 5.6 per cent this year and 4.5 per cent in 2022, before settling back to 3.2 per cent in 2023, close to rates seen before the pandemic.

Another drag on growth is inflation, which has been turbocharged by a confluence of supply bottlenecks in manufacturing, food price increases, and imbalances in the energy market.

Gas prices have risen sharply, notably in Europe, and risks are high, with storage levels around 28 per cent lower than they would normally be at this time of the year, the OECD said.

It said rising food and energy costs were inevitably hitting low-income households the hardest.

The OECD forecast that consumer price inflation will only start to fade in 2022 when key bottlenecks ease and capacity expands.

It said better global access to vaccines must be an urgent policy priority as, alongside the health benefits, it would help this easing by allowing factories, ports and borders to reopen fully.

“Keeping the recovery strong and on track will entail addressing a number of imbalances, but above all it will mean managing the health crisis through better international co-ordination, improving health systems and massively stepping up vaccination programmes worldwide,” said OECD Secretary General Mathias Cormann.

His message was developed by OECD chief economist Laurence Boone.

“Governments must rethink how public resources are put to use. They must spend more efficiently, to raise potential growth and to accelerate the transition to clean energy”, she said.

Both emphasised the need for clear guidance from fiscal and monetary authorities on their policy strategies, which they said will be crucial to maintain market confidence and public support.