© (Chen Jianli/Xinhua/AP)In this photo released by Xinhua News Agency, a container ship sails towards the container dock of Shanghai's Yangshan Port in east China on April 27, 2022. China's export growth tumbled in April after Shanghai and other industrial cities were shut down to fight virus outbreaks. (Chen Jianli/Xinhua via AP)
The Organization for Economic Development on Wednesday downgraded its forecast for global growth in 2022, following Tuesday’s move by the World Bank to also slash its estimate for the world economy.
The OECD now says the global economy will grow at a 3% rate this year, down 1.5 percentage points from its December projection. The World Bank is slightly more dour, with a 2.9% forecast, down from 4.1% it estimated in January.
Both organizations blamed the downgrades on the ongoing war in Ukraine and also China’s aggressive policy on the coronavirus pandemic.
“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 OECD said.
The downgrade “reflects deep downturns in Russia and Ukraine, but growth is set to be considerably weaker than expected in most economies, especially in Europe, where an embargo on oil and coal imports from Russia is incorporated in the projections for 2023.”
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank President David Malpass.
"It shouldn’t be a surprise that the outlook for global economic growth significantly deteriorated from January to June of this year,” John Leer, Morning Consult chief economist, said in a statement Wednesday. “ During that period of time, the global economy experienced military conflict in Europe, rapidly rising food and energy costs, persistent supply chain disruptions and tightening financial conditions.“ Consumers across the world started growing more pessimistic about the economy and their personal finances in October 2021 as inflation became entrenched in advanced economies," Leer added.
World Bank economists compared the current state of the world economy with that of the 1970s, when stagflation – slow growth coupled with high inflation – ensued following a period of energy shocks.
“However, the ongoing episode also differs from the 1970s in multiple dimensions: the dollar is strong, a sharp contrast with its severe weakness in the 1970s; the percentage increases in commodity prices are smaller; and the balance sheets of major financial institutions are generally strong,” the bank said. “More importantly, unlike the 1970s, central banks in advanced economies and many developing economies now have clear mandates for price stability, and, over the past three decades, they have established a credible track record of achieving their inflation targets.”