While global recovery is continuing, its momentum has eased and is becoming increasingly imbalanced, said OECD (Organisation for Economic Co-operation and Development) when releasing its latest Economic Outlook.
The organisation projects 5.6% global economic growth this year, 4.5% in 2022 and 3.2% in 2023 — close to the rates seen prior to the pandemic.
The failure to ensure rapid and effective vaccination everywhere is proving costly with uncertainty remaining high due to the continued emergence of new variants of the virus, OECD noted.
Output in most OECD countries has now surpassed where it was in late-2019 and is gradually returning to the path expected before the pandemic, said OECD, adding that lower-income economies, particularly ones where vaccination rates against COVID-19 are still low, are at risk of being left behind.
- The strong pick-up in activity seen earlier this year is losing momentum in many advanced economies. A surge in demand for goods since economies reopened, and the failure of supply to keep pace, have generated bottlenecks in production chains.
- Labour shortages, pandemic-related closures, rising energy and commodity prices, and a scarcity of some key materials are all holding back growth and adding to cost pressures. Inflation has increased significantly in some regions, early in this recovery phase.
- Alongside cost pressures from manufacturing supply bottlenecks and food price increases, imbalances in the energy market are a key factor driving up inflation in all economies.
- Gas prices have risen sharply, notably in Europe, and risks are high, with storage levels around 28% lower than they would normally be at this time of the year. Rising food and energy costs are inevitably hitting low-income households the hardest.
- Inflationary pressures are proving stronger and more persistent than expected a few months ago. Consumer price inflation in the OECD is now projected to start fading in 2022, before moderating as key bottlenecks ease, capacity expands, more people return to the labour force and demand rebalances.
- Supply disruptions, perhaps associated with further waves of COVID-19 infections, may result in longer and higher inflationary pressure.
- Another risk, exposed by the emergence of the Omicron variant in recent days, is a worsening health situation due to COVID-19 resulting in further restrictions that would jeopardise the recovery.
- A potential sharp slowdown in China, if activity in the property market declined abruptly amid concerns about the financial soundness of some of the largest real estate developers, could also disrupt the global recovery.
- The impact of such a slowdown would spread rapidly to other countries, particularly if it generated uncertainty in global financial markets and added to the current bottlenecks in supply.