The global economy faces growing risks of deterioration as the conflict in the Middle East continues, according to the Organization for Economic Co-operation and Development (OECD), which has reiterated warnings about weaker growth and rising inflation.
Speaking on the sidelines of the G7 meeting in Paris, OECD Secretary-General Mathias Cormann said the conflict is increasing economic uncertainty and placing additional strain on the global outlook.
“Our overall assessment is that it is exerting downward pressure on growth and upward pressure on inflation,” Cormann said in an interview with Bloomberg Television.
OECD Reiterates Earlier Warning
The OECD was the first major international organization to warn, in March, that the war involving Iran could drive up prices and weaken economic activity worldwide.
Cormann noted that the organization provided an initial assessment in its interim economic outlook earlier this year and is now preparing updated forecasts, which are scheduled for release on June 3.
“We will revise that assessment in the coming weeks in the formal sense,” he said, adding that the direction of the impact remains clear: slower growth combined with stronger inflationary pressures.
G7 Talks Focus on Global Imbalances
Finance ministers and central bank governors meeting in Paris this week have been discussing persistent imbalances in the global economy, including the United States’ budget deficit and China’s large trade surplus.
However, concerns over financial markets have added urgency to the discussions. A decline in bond markets has highlighted the growing challenges facing policymakers as they respond to the economic consequences of higher oil prices.
Central Banks Face Difficult Choices
According to Cormann, central banks may soon have to navigate a difficult environment marked by slowing economic activity and increasing inflation risks.
He said that while energy-price shocks can sometimes be treated as temporary, policymakers may need to intervene if higher energy costs begin to spread throughout the wider economy and trigger secondary effects such as wage increases.
“If energy price shocks start affecting broader prices and lead to wage increases, central banks may need to act even if economic growth prospects are weaker,” Cormann said.
Source: tovima.com
