The OECD notes a slowdown in the global economy amid the fight against inflation

The fight against inflation and rate hikes by central banks are already affecting the state of global business activity: the growth rate of the global economy will slow down compared to the beginning of this year, the OECD predicts. Price growth rates are slowing in most countries, but core inflation remains stubbornly high, due in part to delays in fully reflecting the 2021–22 energy price surge in commodity prices. The contribution of the energy component to inflation is growing again, following the next round of rising oil prices.

Global economic growth is slowing after a stronger-than-expected acceleration earlier this year, supported by lower energy prices and the easing of Covid restrictions in China, it said. OECD review. The main factor slowing growth is the global fight against inflation and rate increases by central banks. Real rates have become positive in most developed countries (Japan remains the exception), which is forcing central banks of developing countries to tighten their policies in order to avoid depreciation of national currencies. The tightening of policy is already affecting business activity, but the lag with which its effect manifests itself has lengthened, the OECD believes.

The growth of the global economy, according to this organization, will be 3% this year, and will slow down to 2.7% next year.

In the US, growth will decline from 2.2% to 1.3% as the impact of monetary tightening and reduced credit availability become more pronounced. However, the US economy turned out to be more resilient to the effects of high rates than expected. The continued high consumption rates can be explained by the use of savings accumulated during the pandemic.

In the euro area, on the contrary, growth will accelerate from 0.6% to 1.1% – here the exhaustion of the effect of high inflation on real income growth will be more significant. Growth in China will be held back by weaker domestic demand and structural problems in the real estate market – the country’s GDP could increase by only 5.1% this year and 4.6% next year (any shock to domestic consumption in China will also be felt for global growth ). For Russia, the OECD expects growth of 0.8% this year and 0.9% next year.

Note that although the overall rate of price growth is already declining, this does not apply to core inflation, which does not take into account the cost of energy and food. At the same time, oil prices have already increased by 25% compared to May – this rise in price has again led to an increase in the energy component of inflation. Food inflation is declining but remains high in many countries.

In G20 countries, inflation is expected to slow to 6% this year and 4.8% next year, while core inflation in advanced economies will fall to 2.8% from 4.3%.

The stability of core inflation in the OECD is explained by a higher share of labor costs in the service sector (remember, this same factor referred at the end of August, Fed Chairman Jerome Powell), and the time lag with which the rise in energy prices in 2021–2022 was fully reflected in the cost of other goods and services. The unemployment rate remains low almost everywhere, but consumption is under pressure from rising prices and a slowdown in the growth rate of real wages.

Industrial production in the world is stagnating almost everywhere, despite some surge in technology industries – PMI indicators indicate stagnation in output. However, there is a divergence between some emerging markets, particularly India, which is seeing increased activity, and markets in the US, euro area, UK and China.

Tatiana Edovina