Launch of the OECD Interim Economic Outlook, March 2023

 

Remarks by Mathias Cormann, Secretary-General, OECD

17 March 2023

 

Good afternoon,

More than one year has passed since Russia launched its war of aggression against Ukraine, which materially impacted the global economic outlook.

The war has imposed a heavy price, tragically first and foremost on the people of Ukraine, but also on people all around the world.

It has had, and continues to have, deep economic and social repercussions.

Today, compared to what we said in November, the economic outlook is slightly more optimistic – but it remains fragile.

On one hand, we see improved business and consumer confidence, declining food and energy prices and the reopening of the Chinese economy as having a positive impact on the global economic outlook.

On the other hand, risks remain tilted to the downside.

Some key risks, such as persistent large-scale energy and food market disruptions, have been mitigated for now.

However, favourable conditions in European energy markets might not be repeated next winter.

Falling housing prices risk exposing vulnerabilities.

Volatility in financial markets has increased, which is a risk that has come sharply into focus with developments over this past week.

Debt distress is high in many low-income countries.

And trade tensions could worsen further.

For this year we now project global GDP to grow at a rate of 2.6% (up from 2.2% projected in November).

In 2024, global growth is projected to rise to 2.9% (up slightly from the 2.7% we projected in November).

Headline consumer price inflation in the G20 is projected to come down from 8.1% in 2022 to 5.9% in 2023 and 4.5% in 2024.

These prospects reflect some of the positive news for the global economy.

Energy prices have come down from their peak last year, partly due to a mild winter in Europe and lower energy demand around the world.

Food prices have also come down significantly, although remain high by historical standards.

Since our November update, we had the reopening of the Chinese economy.

This has supported the easing of global supply chain pressures and is likely to boost global demand moving forward.

In advanced economies, business and consumer confidence, albeit still relatively low, has ticked up in recent months.

Headline inflation has shown signs of easing due to the fall in energy prices.

But – as I already said from the outset – the global economic outlook remains fragile and risks remain tilted to the downside.

Russia’s war of aggression against Ukraine is not only a humanitarian tragedy, but also a high potential source of further disruptions to the world economy and commodity markets.

A comprehensive, just and lasting peace for Ukraine consistent, with international law and consistent with the terms of the resolution passed with the overwhelming support of the global community by the UN General Assembly a few weeks ago, would provide a major positive boost to the global economic outlook.

Furthermore, the fight against inflation is not over yet.

Goods inflation is receding, but services inflation is proving persistent.

Central banks must stay the course with monetary policy tightening to get inflation back to target.

The recent developments in financial markets are an example of just how challenging the current juncture is.

Interest rates have risen significantly over the past year, triggering re-pricing across financial assets and raising some concerns about financial stability.

Fiscal policy should remain prudent, and the support rolled out to cushion the impact of high energy costs and inflation more broadly on households and companies should become more targeted.

The recent decline in energy prices and expected declines in headline inflation provide an opportunity to wind down some of these blanket measures, better targeting that support and minimising any inflationary impact.

Investing in energy security and affordability, in a way that is also consistent with our climate objectives is particularly important, also because some of the favourable conditions that helped reduce energy demand this year – like a mild winter in Europe – may not be repeated next year.

Structural reforms to revive productivity growth will be key to optimising the recovery and long-term growth prospects.

Policy makers need to act to enhance business dynamism, lower barriers to competition, investment and skilled migration, while ensuring a more inclusive labour market.

Finally, International cooperation and multilateralism remain key to ensuring a recovery that works for all and is sustainable.

This means keeping trade open to reduce supply-side pressures on inflation but also ensuring low-income countries’ debt servicing obligations stay manageable and that debt distress can be avoided as interest rates rise.

It also means translating our ambition and commitments to tackle climate change into real actions and globally effective outcomes.

The OECDInclusive Forum on Carbon Mitigation Approaches, which had its inaugural meeting last month, is designed to help achieve this by helping to optimise the global impact of individual countries’ emission reduction efforts through data and information sharing, evidence based mutual learning and inclusive multilateral dialogue.

To close, the scale of today’s challenges is significant.

Responding to them with sensible, well considered policy action is the way towards a better and brighter future.

Towards this, the OECD will continue to support our Member countries and the global community with our data and policy analysis, our best practice policy advice, while facilitating dialogue and evidence based problem solving.

I will now pass the floor to Alvaro to deliver the details of our analysis. Thank you.