LONDON — UK growth has lagged the world’s biggest economies since the Covid-19 pandemic and is significantly below the OECD average, according to a new report from the influential Paris-based group.
UK gross domestic product contracted by 0.4% between the fourth quarter of 2019 and the third quarter of 2022, compared to cumulative growth of 3.7% in the 38 members of the Organization for Development Cooperation economic.
In the G-7 countries – which include Canada, France, Germany, Italy, Japan, the United States and the United Kingdom – GDP grew by a cumulative 2.5%, only the UK registering a decline.
“We believe this is happening mainly because of investment and consumption,” OECD chief economist Alvaro Pereira told CNBC’s Joumanna Bercetche on Tuesday.
“Knowing that the UK faces a difficult fiscal situation, which is why we welcome what the government has done in its latest statement,” he said.
Last week, Finance Minister Jeremy Hunt announcement around £30billion in spending cuts and £25billion in tax hikes for workers and businesses in what he said was a bid to rebuild public finances, limit Inflation at its highest in 41 years and restore economic credibility after the september budget that tipped the market.
“We think it is very important to maintain fiscal prudence at the same time as you are able to stimulate or try to introduce certain types of reforms to address some of the problems that have plagued the UK for some time. , namely very low productivity,” Pereira continued.
“I think it’s time to focus on that as well as monetary and fiscal policy.”
Pereira added that the OECD forecast for how much the UK economy will grow between 2022 and 2024 was similar to the Independent Office for Budget Accountabilitybut he expected a shallower recession of 0.4% next year, but growth of 0.2% the following year, while the UK’s OBR predicts a deeper recession and a stronger rebound.
Michael Saunders, former Bank of England policy maker this week told CNBC Hunt’s plan had a “massive” hole where an economic growth strategy should be.
‘The light at the end of the tunnel’
Tuesday also saw the publication of the OECD’s global report Economic Outlook Report.
This warned that the global economy is expected to slow down in the coming year due to the energy market shock caused by the Russian invasion of Ukraine and against a backdrop of skyrocketing inflation, low consumer confidence and global risks.
However, he thinks the world will avoid a recession, with growth of 3.1% in 2022, 2.2% in 2023 and 2.7% in 2024.
OECD Secretary-General Mathias Cormann said in broadcast remarks that “the world faces substantial headwinds and substantial risks on the horizon” and that “countries must also take bold steps to addressing some of the longer-term challenges in order to lay the foundations for a more resilient economy.”
This included structural reforms such as increasing childcare support and flexible work options to encourage more women to work, creating incentives to stimulate investment in low-emission technologies and keeping international borders open to trade to mitigate supply-side inflationary pressures.
Pereira told CNBC: “We face a very challenging environment. I think one of the most dramatic pictures we have in our outlook is exactly how much countries are spending in terms of energy as a percentage of GDP, and you can see it right now. for OECD countries it’s almost 18%…which is as high as we saw in the oil crisis of the 70s and 80s.”
“We are currently facing a very large energy shock that is slowing growth while fueling inflation.”
The main downside risks relate to energy markets, particularly next year in Europe and Asia if there are two cold winters and retail prices follow higher wholesale prices, it said. -he declares. The OECD is also concerned about financial market volatility for low-income countries and emerging markets that have high debt burdens amid rising rates.
However, he reiterated that the OECD does not foresee an annual recession, even in major economies like the United States and the euro zone.
He also said central bank action on monetary policy would begin to take effect to bring inflation under control, and that the latest impression of US inflation was “quite positive.”
“We expect that not only in the United States but in other parts of the world, the monetary policy decision will start to have more and more impact. Our central forecast sees inflation peaking in many countries in the middle next year or at the end of this year, but especially next year,” Pereira said.
“Particularly in 2024, we are starting to have inflation rates much closer to target, so there is light at the end of the tunnel, but we must not give up on monetary and fiscal tightening working hand in hand. .”