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OECD over-optimistic in forecasting even weak growth

19 September 2023

The OECD is over optimistic in forecasting even weak growth and underestimates the risks that restrictive monetary policies pose for the final quarter of 2023 and through 2024 warns TUAC.

“The OECD is forecasting weak growth in today’s Interim Outlook” said Veronica Nilsson, General Secretary of TUAC “but the full impact of the biggest monetary tightening for decades is still to hit us. In total, 5 to 7 percentage points could be subtracted from GDP, destroying most if not all of the post-pandemic economic recovery.”

“Far from achieving even weak growth, monetary restriction creates a real risk of a severe economic downturn."

— Veronica Nilsson, General Secretary, TUAC

“Businesses have used supply chain turmoil to hike prices and increase profits, a fact implicitly recognized by the OECD’s Interim report by stating that the profits could absorb wage increases without adding to inflation pressures. Meanwhile workers face a double whammy of real wage cuts and job losses. Higher unemployment would put workers in a weaker bargaining position and lead to more wage depression.

“Inequality, already rampant, will get worse and will undermine trust in the way our economies are managed. OECD urgently needs to revise its economic policy analysis.”

TUAC strongly disagrees with OECD’s insistence that monetary policy should remain restrictive well into 2024, and notes that this insistence is not in line with its own forecast that inflation in the US and elsewhere is already in the process of coming down to target over the next year. As high interest rates increase the cost of debt servicing, it is also in contradiction to its warning of fiscal pressures increasing due to an ageing population and the need for climate action.

TUAC calls upon the OECD to:

  • Fully recognize in its analysis the fact that monetary policy works with substantial time lags and that the full impact that restrictive monetary policy is likely to have on the economy is still in the pipeline.
  • Recommend a forward-looking monetary policy to avoid unleashing large disinflation at a moment inflation is already coming down on its own as supply side shocks are reversing.
  • Start a policy discussion on how to prevent and remedy the harmful effects of recent monetary tightening.

See OECD Economic Outlook  for more on OECD’s forecast