OECD sees main risk to global growth

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OECD sees main risk to global growth

PARIS, December 1, Reuters - The main risk to an otherwise upbeat global outlook is that the current inflation spike proves to be longer and rises further than anticipated, the OECD said on Wednesday.

The Organisation for Economic Cooperation and Development said in its latest economic outlook that global growth is poised to hit 5.6% this year, before it falls to 4.5% in 2022 and 3.2% in 2023.

The forecast for 2021 was slightly changed from a previous forecast of 5.7%, while the forecast for 2022 was unchanged. The estimates for 2023 were not produced by the OECD until now.

With the global economy rebounding strongly, companies are struggling to meet a post-pandemic snap-back in customer demand, leading to inflation to go up worldwide as bottlenecks have emerged in global supply chains.

Like most policymakers, the OECD said that the spike was expected to be temporary and fade as demand and production returned to normal.

The main risk is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than predicted, according to the OECD.

If that risk did not happen, inflation in the OECD was likely close to 5% and would gradually drop back to about 3% by the year 2023, the Paris-based organisation said.

Central banks can wait for supply tensions to calm and signal they will act if necessary, the OECD said.

Federal Reserve Chair Jerome Powell said on Tuesday that the central bank should consider winding down of its large-scale bond purchases faster amid a strong economy and expectations that a surge in inflation will continue into the middle of next year.

In the United States, the OECD predicted that the world's biggest economy would grow 5.6% this year, 3.7% in 2022 and 2.4% in 2023, down from previous projections of 6.0% in 2021 and 3.9% in 2022.

The outlook for China was less optimistic, with growth forecast at 8.1% in 2021 and 5.1% in both 2022 and 2023 whereas previously the OECD had expected 8.5% in 2021 and 5.8% in 2022.

The outlook was slightly more positive for the euro zone than previously expected, with growth expected at 5.2% in 2021, 4.3% in 2022 and 2.5% in 2023 compared to previous forecasts of 5.3% in 2021 and 2.5% in 2023.