What’s going on here?
The OECD said on Wednesday that the global economy might have little to flaunt this year.
What does this mean?
These might not be the breeziest days of your life, but compare them to the full-scale doomsday scenarios that have been batted around this year and you’ll see that the global economy’s actually held up alright. But the World Bank just won’t let us relax, warning that the world’s economies are in a “precarious state” and headed for major rate-hike-induced slowdowns. And as if that wasn’t depressing enough, the OECD has jumped on the bandwagon. The organization upped its global growth forecast to 2.7%, given China’s more relaxed Covid rules. Thing is, if you take out pandemic-hit 2020, that’s still the lowest annual rate since the 2008 financial crisis.
Why should I care?
For markets: Decision time.
Relentless interest rate hikes are a main culprit, it’s true, but the OECD reckons lingering inflation’s still a big risk too. That’s why it’s urging central banks to stay tough until headline inflation and core inflation – which strips out volatile food and energy costs – come back to target. But the OECD predicts that inflation across the G20 countries will stick at 6.1% this year and 4.7% the next. So all eyes will be on the big dogs next week: the Federal Reserve’s expected to pause hikes, while the European Central Bank’s suspected to be gearing up for another hike.
The bigger picture: Time to see a shrink.
China’s a picture of economic weakness right now, not just because of the country’s internal problems. See, China makes up about a quarter of the world’s manufacturing output, so its export numbers tell you a lot about the rest of the world too. And May’s weren’t good: Chinese exports shrank much faster than expected, with a hefty 7.5% slump from the same time the year before.
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