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OECD Economic Outlook: monetary restriction, less social spending and big bank profits

02 May 2024

The OECD Economic Outlook May 2024 recommends keeping monetary restriction “for some time to come” and argues in favor of spending restraint – singling out pension and other social spending.

“The OECD really needs to be more balanced in its approach to monetary policy. Financing climate action is a planetary emergency which will not wait for brighter economic times. It cannot be funded while making investment more expensive and squeezing working people."

— Veronica Nilsson, General Secretary of TUAC.

“Support for climate action will be undermined if it is not done in a socially just way” added Veronica Nilsson. “The OECD should also not underestimate the damage that growing inequality is doing to trust in democracy and government policy.”

TUAC believes the OECD Economic Outlook’s recommendations are not in line with the its own analysis in the Outlook, which

  • Describes how a stronger than anticipated impact of past monetary tightening would damage an already weak recovery and spill-over into corporate bankruptcies, financial market instability and currency crises in emerging markets.
  • Acknowledges that the major decline in inflation over the past year corresponds to an easing of supply-driven inflation, and quoting research that found disinflation in the US is primarily supply driven.
  • Raises doubts about the necessity of maintaining monetary restriction as declining input costs, lower profit taking, and stronger productivity growth allow real wages to recover from the cost-of-living crisis while inflation is pushed down further.
  • Warns against” excessively” weakening growth and undershooting the price stability target.

TUAC regrets that the OECD fails to see that the consequences of keeping a monetary restriction could be as bad as those of prematurely loosening monetary policy.

The OECD is also drawing the wrong conclusion when signaling soaring interest payments by central banks to commercial banks because of the reserves the latter hold with their central banks. TUAC does not accept that this is a valid argument for more fiscal austerity. TUAC does not believe that central banks should be facilitating additional profits for banks at a time when public finances and public spending face huge pressure, and without any guarantee that banks will not pay these windfall gains to their shareholders and CEOs.

TUAC warns that giving banks enormous profits, while squeezing public spending and leaving working people worse off makes a dangerous combination.

“Banks are making enormous windfall profits from high interest rates. There is a strong case for a windfall tax on excessive bank profits, but this is not mentioned by the OECD. Questioning pension and social spending, but not addressing the windfall profits enjoyed by banks, is not acceptable.”

— Veronica Nilsson, TUAC

See here for more detailed TUAC comments on the Economic Outlook May 2024