Seven months ago, the world economy was hit by Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine, while we were still dealing with the scars left by the pandemic.
Energy and food markets have been severely disrupted and confidence declined sharply.
Inflation surged and global economic growth slowed down.
The world is paying a heavy price for Russia’s war of aggression against Ukraine.
Álvaro will present the details of our analysis, but let me highlight some key challenges.
We are facing a global and broad-based surge in inflation.
Inflationary pressures were already building up during the recovery from the COVID-19 pandemic, as economies re-opened and supply couldn’t match the sudden surge in demand.
Russia’s war of aggression against Ukraine brought additional disruptions to commodity markets and pushed prices on those markets up further.
Elevated food and energy prices are now spreading more broadly to affect core goods and services in many countries.
Households and firms are suffering as costs rise and purchasing power is taking a hit.
For all these reasons, the Interim Economic Outlook that we present today is more pessimistic than our previous projections in June, which were already a material downgrade on our projections towards the end of last year.
The war, the burden of high energy and food prices, as well as zero COVID-19 policies in China mean that growth will be lower and inflation will be higher and more persistent.
We project global GDP to grow at a modest 3% in 2022 and an even weaker 2.2% in 2023.
This is well below the pace of economic growth projected prior to the war and represents around USD 2.8 trillion in foregone global output in 2023.
This reflects widespread weakness in combined manufacturing and services activity and sagging consumer confidence.
We also project inflation to remain high but to start subsiding in many major economies through 2023.
In the G20 economies, inflation is projected to average 8.2% in 2022 and still be at 6.6% in 2023.
This challenging economic situation requires bold, well-designed and coordinated policies.
High inflation and the energy crisis are particularly urgent, but we need to remain focused also on our medium to longer-term objectives.
First, it is critical that monetary and fiscal policy work hand in hand to curb inflation while cushioning its impact.
Monetary policy will need to continue to tighten in most major economies, to tame inflation durably.
Tighter monetary policy is key to restoring household and businesses confidence that inflation will remain under control in the long run.
Failing to act now would make future monetary policy actions more costly and painful.
Policymakers should provide fiscal support to vulnerable households and firms, while ensuring that price signals still operate to reduce energy consumption.
Governments have already provided significant fiscal support during the pandemic, and we do not know how long this energy crisis will last.
It is important, however, that near-term fiscal support remains targeted and temporary; and that governments do not provide further persistent fiscal stimulus, which could exacerbate inflationary pressures and risk long-term fiscal sustainability.
Second, addressing the energy crisis is a priority.
Russia has been using gas as an economic weapon by gradually cutting exports to Europe.
European countries have reacted quickly, in particular by increasing Liquefied Natural Gas imports.
As the global supply of Liquefied Natural Gas is very tight due to structural constraints, gas prices in Europe and Asia have soared and the risk of further disruptions in the near future remains.
Electricity prices have also shot up, adding to the burden on families and firms.
There are uncomfortable trade-offs in dealing with the energy crunch.
In the short-term, the diversification of energy supplies can involve an increased reliance on expensive and polluting fuels.
With Russia cutting off gas exports to Europe this is necessary, however this vulnerability does in fact come from the delay in implementing the green transition.
Governments need to ensure that the goals of energy security, affordability and climate change mitigation are aligned.
Near-term energy security and affordability, supply diversification, energy efficiency and demand-side measures are urgent priorities.
They should be accompanied by stronger policy measures to enhance investment in clean technologies.
Investments in clean energy are particularly needed to improve energy security, help achieve energy transition goals and ease pressure on the availability of gas used as a transition fuel.
There is no time to waste.
According to the International Energy Agency, in just over 7 years’ time, annual global investment in these technologies needs to triple and be 3.1 trillion US dollars higher than now. That means extra investment equivalent to the size of the French economy – every single year.
Governments can achieve more by working together.
Within Europe, to prevent energy hardship this winter, there is an urgent need to co-ordinate on supply diversification and reducing energy dependence, improving gas and electricity interconnections and reinforcing solidarity among European Union members.
Globally, increasing investment in low emissions technology and innovation is going to require greater predictability to give investors the confidence that such investments are profitable. A clear policy framework combining price signals and regulatory and fiscal tools is essential to achieve these goals.
To help countries improve these frameworks the OECD launched a few months ago an important initiative, the Inclusive Forum on Carbon Mitigation Approaches, to promote the necessary dialogue between countries on an equal footing, as well as for the sharing of policies and experiences that countries are undertaking to mitigate the impact of climate change.
My third and last message, we cannot forget about food affordability.
Food prices are about 30% higher than before the pandemic.
Even though food prices have declined from their recent peaks, high energy prices have pushed up fertiliser costs.
This, together with recent extreme weather events around the world, raises concerns about future crop yields and food affordability.
The situation is particularly worrisome for many low-income countries, which have little room to cope with any disruption.
We need international cooperation to keep food affordable in low-income countries.
Export restrictions should be avoided and additional direct aid will be required.
In closing, the world continues to pay a high price for Russia’s war of aggression.
The global economy is slowing down, inflation is broadening, and households and firms continue to bear the brunt of high energy and food prices.
In this challenging environment, well-designed policy responses and international cooperation are needed to overcome this difficult situation.
I will now pass the floor to Alvaro to deliver the details of our analysis.