OECD warns of major slowing down in growth across Europe

High inflation and “very low” consumer confidence are contributing to a big slowing down in growth across Europe, the Organisation for Economic Co-operation and Development (OECD) has warned.

Following on from its outlook report last week, which warned of a big fallout from Russia’s war in Ukraine, the OECD said leading and real-time economic indicators were pointing to a significant loss of growth momentum across industrialised countries, but particularly in Europe.

Several commentators are predicting the euro area will fall into recession on the back of high inflation and the war in Ukraine.

The Paris-based agency said composite leading indicators (CLIs), which are driven by high-frequency data such as order books, confidence indicators, building permits and new car registrations, have weakened in recent months. They point to loss in growth momentum in the euro area as a whole, including in Germany, France and Italy, and also in the UK and Canada, the OECD said. In contrast, the CLIs continue to point to stable growth in the US and Japan, it added.

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“Ongoing uncertainties related to the war in Ukraine and Covid-9 are resulting in higher than usual fluctuations in the CLI components,” it said, noting the CLIs aim to anticipate cyclical fluctuations in economic activity over the next six to nine months.

The UK economy contracted for the second month in a row in April in the first back-to-back fall since the pandemic struck in 2020 as the cost-of-living crisis took its toll.

In its report last week the OECD warned the economic fallout from Russia’s invasion could be more damaging than initially thought and harder to set right through fiscal and monetary policies.

It also detailed a long list of risks ranging from an abrupt Europe-wide energy interruption if Russia cuts gas flows in response to sanctions to further increases in commodity prices and stronger disruptions to global supply chains.