The Organization for Economic Cooperation and Development (OECD), which unites the world’s wealthiest countries, raised its global economic growth forecast for this year from 2.2 percent to 2.6 percent in its interim report published on Friday.
“Russia’s aggression war in Ukraine continues to cast a shadow over global economic prospects. Despite some signs of improvement, the recovery over the next two years will be moderate. The outlook for an improved economic situation remains fragile, with risks that could lead to a deterioration,” the OECD report states.
It highlights that international trade has been damaged by the war, and the prevailing tensions could further reduce trade volumes.
Concerns about potential vulnerabilities in the financial sector have also grown, including banks, real estate markets, and poor countries.
Although inflation has started to decline, it remains high and may stay that way for an extended period.
The OECD also noted that while it had projected global economic growth of 3.2 percent for 2022 in 2021, Russia’s full-scale war in Ukraine reduced economic growth by one percentage point.
However, the OECD acknowledged that in addition to the decline in inflation, falling energy prices are a positive sign, which were also driven up by Russia’s war in Ukraine.
Among general recommendations for governments, the OECD emphasises monetary policy stability and the need to control inflation by maintaining high interest rates until 2024. When providing support, governments should consider abandoning universal support and focusing only on households or businesses most in need. The OECD also observes that productivity growth has slowed in member countries, and governments should implement structural changes to encourage digital transformation and the adoption of new technologies. Reducing gender gaps and cutting restrictions on the service sector would also be beneficial.
The OECD’s updated economic growth forecast acknowledges the continued influence of Russia’s aggression in Ukraine on global economic prospects. The report emphasizes potential vulnerabilities in the financial sector, the need for monetary policy stability, and the importance of focusing on households or businesses most in need of support. Furthermore, the OECD encourages governments to implement structural changes to boost productivity growth, foster digital transformation, and reduce gender gaps.