The primary title of the Organisation for Economic Co-operation and Development's (OECD) most recent Global Economic Outlook Report, released on Sept. 19, is "Confronting inflation and low growth."
This title holds two critical dimensions. Firstly, it highlights the apparent contradiction between the presence of low economic growth on the one hand and the persisting issue of sticky inflation on the other. Secondly, it raises concerns about the potential exacerbation of the low growth problem if central banks in the world's leading economies continue tightening monetary policies in their pursuit of combating inflation.
The central concern within the first dimension revolves around the concept of "greedflation," primarily stemming from the services sector but pervading nearly every industry. Across all OECD member nations, the shared challenge of inflation opportunism and excessive profit-seeking remains a significant issue.
In addition to the OECD's warning about inflation, a second warning is about the source of low growth. Here too, the troubled process that the Chinese economy is going through today and the possibility of slower-than-expected growth in 2024 stand out as the reasons for low growth. So much so that, in terms of the possibility of the world economy experiencing a growth rate that is 1.1 points lower than the growth forecasts shared in previous reports, if 0.45 points of this probability is due to tight financial conditions, 0.65 points is due to the slowdown in the Chinese economy.
As a matter of fact, while there is already a troubling situation in the manufacturing industry, the rapid loss of momentum in the recovery after the global virus outbreak in the services sector is also reflected in the data. In addition to the global manufacturing industry’s Purchasing Manager’s Index (PMI), which has been on the negative axis since last May, the global services PMI has also been declining rapidly after its peak in March and April.
The OECD's third concern regarding the global economic landscape pertains to rising borrowing costs resulting from the central banks' preference for tight monetary policies. This development poses challenges for both the real estate sector and the investment enthusiasm of the private sector. In a span of just 18 months, interest rates for global private sector loans have surged from 1.8% to 5%, while mortgage rates have climbed from 2.1% to 4.7%.
The fourth warning of the OECD is that this whole situation is reflected in the global employment market as unemployment and problems in real wages. Despite this difficult global economic situation, the OECD's recommendation to continue tightening monetary policy stems from the risk of sticky inflation.
Furthermore, the OECD underscores the importance of effective public expenditure management, emphasizing the need to maintain a careful equilibrium between public revenues and expenditures. The organization's third recommendation highlights the imperative of directing public resources and efforts toward the advancement of renewable energy technologies and investments in renewable energy sources.
The report's fourth and concluding recommendation emphasizes the need for uninterrupted structural reforms aimed at fostering long-term growth within OECD member countries. It also underscores the importance of swiftly removing hindrances that impede global trade. The OECD's stance on global trade assumes significance due to the presence of not only barriers hindering trade between the Global North and the Global South but also the potential for certain OECD member nations to impose unjust non-tariff and rule-defying barriers on fellow member countries. These critical issues will remain subjects of discussion in the upcoming period.
