The Organization for Economic Cooperation and Development (OECD) has lowered its
predictions for global economic growth this year, citing the impacts from the ongoing war in
Ukraine and continued COVID-19 lockdowns in China.
The OECD now estimates that global gross domestic product (GDP) will hit 3% in 2022, a 1.5
percentage point downgrade from its previous forecast last December. However, the
organization downplayed the possibility of a prolonged period of stagflation, when consumer
prices rise in a zero growth or negative economic growth environment.
“The invasion of Ukraine, along with shutdowns in major cities and ports in China due to the
zero-COVID policy, has generated a new set of adverse shocks,” the Paris-based OECD said in
its latest economic outlook.
Russia’s invasion of Ukraine is having massive ramifications on the global economy, but China’s
zero-Covid policy — a strategy Beijing uses to control the virus with strict lockdowns — is also a
drag on global growth given the importance of the country in international supply chains and
manufacturing.
The European Union in late May moved to impose an oil embargo on Russia, after agreeing the
previous month to also stop coal purchases from the country. The bloc has been heavily
dependent on Russian fossil fuels and cutting some of these supplies will have a significant
economic impact.
Nonetheless, the euro zone, the 19-nation region that shares the euro, and the United States do
not differ much in terms of their economic outlooks. The OECD said Europe will grow 2.6% this
year and the U.S. will expand by 2.5%.
For the United Kingdom, where the cost-of-living crisis is also an economic issue, GDP is seen
at 3.6% this year before slumping to zero next year.
The global macro picture has darkened for emerging economies, notably because they are
expected to be hurt the most by food supply shortages and rising food prices.
However, despite the difficult economic environment, it’s unlikely that the global economy is
heading into a period of stagflation — where an economy sees high inflation and high
unemployment alongside stagnant demand as experienced in the 1970s.
The World Bank earlier this week said that it had also turned more negative on global economic
growth prospects. That institution said global GDP would reach 2.9% this year, lower than its
4.1% forecast in January of this year.?
