High inflation and ‘persisting uncertainties’ point to global slowdown, OECD warns

High-frequency data such as order books and confidence indicators signal loss of momentum, agency says

The impact of high inflation on real incomes, renewed Covid-19 threats and “persisting uncertainties” related to the war in Ukraine point to a weakening in global growth, the Organisation for Economic Co-operation and Development (OECD) has warned.

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, indicated a loss of growth momentum in most large economies.

The CLIs “continue to anticipate a loss of growth momentum” in the euro area — including France, Germany and Italy — the US, Canada and the UK.

“In the face of persisting uncertainties related to the war in Ukraine, renewed Covid-19 threats and the impact of high inflation on real household income, the CLI components might be subject to larger-than-usual fluctuations,” the OECD said.

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“As a result, the indicators should be interpreted with care and their magnitude be regarded as an indication of the strength of the signal rather than as a measure of growth in economic activity,” it said.

A separate report from the Ifo institute forecast Germany’s economy will contract next year as a dramatic rise in energy costs due to the war in Ukraine extinguishes the chances of recovery after pandemic-related lockdowns. This was a U-turn from its forecast three months prior.

The institute reversed its June forecast of 3.7 per cent growth for 2023 and now predicts that Europe’s largest economy will contract by 0.3 per cent. At the same time, it bumped up its forecast for 2023 inflation by 6 percentage points to 9.3 per cent.

Separate data showed Britain’s economy grew less than expected in July, with a fall in power production possibly reflecting the sharp climb in energy tariffs and the construction sector also hit by a leap in inflation. — Additional reporting by Reuters

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times