OECD underestimates the risk of monetary policy tightening overshooting its goal

The OECD Economic Outlook, Interim Report of February 2024, underestimates the risk of monetary policy tightening overshooting its goal.

TUAC is also concerned that OECD fails to draw the lesson of inflation declining rapidly and ignores the urgent need to start cutting interest rates as soon as possible to avoid inflicting unnecessary damage on the economy and on jobs.

TUAC welcomes the OECD call to prioritise resources to tackle climate change and falling educational standards.

At the same time, TUAC

• Considers that there are other priorities in addition to existentially important climate action and education, such as health service resilience and decent social protection,
• is disappointed that wages are again identified by the OECD as a source of inflation, disregarding the fact that wage dynamics are decelerating and that high business profits mean wages can be raised without creating inflation,
• is puzzled by the OECD’s inconsistency: counting on wages delivering real income increases to support growth in 2024, and at the same time considering wages a reason to keep monetary policy tight,
• is alarmed that OECD’s call for comprehensive action to reduce public debt appears to be focussed on reducing spending and not increasing resources such as through wealth and financial transaction taxation.

“Austerity is not the answer to the global economic slowdown” warned Veronica Nilsson, General Secretary of TUAC. “It is positive that the OECD is calling for policies to tackle climate change and improve educational standards, but this cannot be at the expense of other vital investments such as social protection or health systems. Only recently OECD Health Ministers committed to tackle healthcare staff shortages through improved working conditions, and there is a long-standing need to improve social protection in many countries. COVID and the cost-of-living crisis has been very tough for working people and now is no time to add to the pressure.”

“The emphasis put on containing spending growth and on cautious monetary policy is not particularly insightful or helpful when investment is needed not only to tackle climate change but to do so in a socially just way. Listening to the launch of the Interim Economic Outlook you would not think that public finances are linked to revenue as well as spending, but that spending is the only variable. This needs to change.”