Britain is on the brink of recession as soaring prices, tax hikes and labor shortages derail the Covid recovery and bring the economy to a halt, the Organization for Economic Co-operation and Development has warned (OECD).
Families will be forced to dip into their savings or take on more debt as prices soar above incomes, the economic think tank has warned, with inflation hitting double digits later this year due to bottlenecks. strangulation of global supply and turmoil in the energy market.
Even next year, inflation will be more than double the Bank of England’s 2% target, the OECD said, as the EU oil embargo on Russia keeps costs high.
This is part of a major global slowdown. World GDP will grow by 3% this year, a third slower than the OECD predicted in December, before the invasion of Ukraine.
But even before the war, inflation was taking its toll as the cost of living rose due to the pandemic rebound and China’s zero-Covid lockdowns.
The OECD said: “In most OECD economies, real household disposable income was already declining year-on-year in the last quarter of 2021, despite strong employment growth, and in many of them , this decline is estimated to have continued into the first quarter of 2022.”
Growth in the euro zone is expected to slow to 2.6% this year and 1.6% next year, with a risk of recession if Russian gas supplies are completely cut off, either by Moscow or by an embargo. from the EU, because “European economies are struggling to wean themselves off”. on Russian fuel. But because alternative energy sources may not be easy to develop quickly, there is a risk of rising prices or even shortages.
A complete end to Russian gas imports would take a further 1.25 percentage points off euro zone growth, which “could potentially leave many countries close to recession or in recession in 2023”, the OECD said. .
“Growth would also be weakened in 2024 if the shocks persist, as demand gradually aligns with the reduction in supply. Real household incomes would be hit hard, falling by more than 2% in eurozone economies.
But the OECD said it might be necessary to help Ukraine win the war: “Limiting Russia’s ability to finance the war, as provided for by an embargo on Russian oil exports, is essential to accelerating the end to this devastating conflict”. said the tank.
The war has added to China’s lockdowns, which are compounding the chaos that had already engulfed global supply chains during the pandemic.
The OECD said: “China’s zero Covid policy continues to weigh on the global outlook, reduce domestic growth and disrupt global supply chains.”
But it is difficult for the world’s second largest economy to break its impasse.
“Almost 90% of the population is vaccinated with locally manufactured vaccines, which are considered less effective than those used in OECD countries,” the economists said.
Large-scale shutdowns are now distorting the shape of the economy.
“These policies are creating demand for new isolation facilities, new jobs at local neighborhood centers and delivery businesses, but these investments are less productive than those, for example, in much-needed infrastructure,” he said. OECD.
In the meantime, higher interest rates are needed to try to control inflation, but they also risk hurting growth.
The OECD called for “particular caution in Europe” when it comes to raising interest rates, but said that “wherever inflation is driven by overly buoyant demand, such as in the United States , monetary policy can be tightened more quickly to reduce this excess”.