OECD warns of slowdown in Europe over inflation and Ukraine war

Real-time economic indicators are pointing to a slowdown in growth across Europe as the continent grapples with high inflation and the costs of war in Ukraine, 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, continue to point to growth losing momentum in Europe.

Conflict

The OECD said the outlook for the euro zone economy and the UK was “shaped by surging inflation and declining expectations in manufacturing”.

The Ukraine conflict and the rapid increase in the price of energy and other commodities have changed the near-term economic outlook, raising the inflation outlook and heightening uncertainty, it said.

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Bank of England governor Andrew Bailey warned last week that the UK economy could be headed for recession as high inflation erodes real income and dampens consumer spending.

Markets have been declining amid fears of another downturn and tighter monetary policy.

Outside Europe, the OECD said CLIs continue to point to stable growth in Canada, Japan and the United States.

Stable growth is also anticipated in most major emerging-market economies, in particular China (industrial sector) and India.

Activity

“The CLIs aim to anticipate cyclical fluctuations in economic activity over the next six to nine months based on a range of forward-looking indicators such as order books, confidence indicators, building permits, long-term interest rates, new car registrations and many more,” the OECD said.

“Most indicators are available up to April 2022. It is worth noting that ongoing uncertainties related to the war in Ukraine and Covid-19 are resulting in higher than usual fluctuations in the CLI components,” it said.

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