Quick Bite | OECD on “Confronting inflation and low growth”
October 04th, 2023 | Article
By: Paul Zwi
On 19 September, the OECD released its Economic Outlook (Interim Report, September 2023) which is very briefly summarised below. In essence, it says that the global economy proved more resilient than expected in the first half of 2023, but the growth outlook remains weak. With monetary policy becoming increasingly visible and a weaker-than-expected recovery in China, global growth in 2024 is projected to be lower than in 2023. Annual global GDP growth is now expected to slow from 3% this year to 2.7% in 2024.
It further notes that while headline inflation has been declining, core inflation remains persistent, driven by the services sector and still relatively tight labour markets. Risks continue to be tilted to the downside. Inflation could continue to prove more persistent than anticipated, with further disruptions to energy and food markets still possible. A sharper slowdown in China would drag on growth around the world even further. Public debt remains elevated in many countries.
We pick out some of the key charts from the report for your attention and interest.
The report’s key message is pretty much as expected, and echoes the views recently articulated by the US Federal Reserve’s recent working paper on the history of inflation shocks. Broadly stated, the message is as follows: “Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are durably lowered, with near-term inflation expectations moderating further and excess resource pressures fading in labour and product markets. This is likely to limit scope for any policy rate reductions until well into 2024 in most advanced economies. Some additional rate rises could still be needed where underlying inflation pressures are particularly persistent, but policy rates appear to be at or close to their peak in most economies. In the event of additional financial market stress, full use should be made of the financial policy instruments available to central banks to enhance liquidity and minimise contagion risks.”
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