OECD chief economist calls on governments to cut fiscal support

The time has come for countries to get their public finances in better shape, the OECD’s new chief economist has said, as the coronavirus pandemic and energy crisis are fading into the background.

Speaking to the Financial Times in Paris ahead of the international organisation’s global forecast on Wednesday, Claire Lombardelli said the world economy was set to grow by 2.7 per cent in 2023 and 2.9 per cent in 2024.

The improved backdrop meant that now was the time for governments to rebuild their fiscal buffers, help fight high inflation and better position countries to deal with the costs of a growing population.

“We (Ukraine) have seen understandable and necessary financial aid in response to the war and the pandemic. , , (But) now the time has come that the massive fiscal support needs to be withdrawn,” she said.

Lombardelli, who joined the OECD from the UK Treasury, said offering support only “to those who really need it” would also be more consistent with central banks’ rate hikes.

The US and European countries have increased spending since the start of the pandemic. They now face much higher bills to finance that support following a rise in global borrowing costs. Lombardelli said there was “no expectation” about when the economy would reduce its debt load. “We don’t want debt levels to go up forever. It makes countries less resilient.”

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Lombardelli said that although there may be exceptional circumstances in some countries, “on average, we need to reduce debt levels”.

The OECD’s main forecasts suggest the global economy is weathering the storm earlier this year when banks failed on both sides of the Atlantic. The OECD predicts the US will avoid recession, Germany will recover from its recent contraction in output and China’s growth will meet Beijing’s 5 per cent target.

“The global economy is growing and freeing itself from the shocks we have seen over the past few years,” she said, while pointing out that this year is expected to be weak by historical standards.

Lombardelli said the immediate priority should be to ensure that inflation in most advanced economies returns to its target level of around 2 percent, for which interest rates should remain at or slightly higher than their recent highs for some time. will need to grow.

“Both national and international forecasts have got the persistence of inflation wrong. So you may need to tighten monetary policy further.

She said central bankers will have to keep a close watch on wages especially for signs of inflation.

As part of its Economic Outlook, the OECD looked at nine countries to see whether companies were fueling inflation by increasing margins. It found only modest evidence of high profits, most of which were concentrated in mining and energy companies.

It was still worth being cautious about “greed,” Lombardelli said, because companies may still try to protect profit margins should workers call for wage increases.

“The effects are not massive,” she said. “But there is something there. Labor costs are going up, profits are going up, but we don’t think that (greed) is going to be a sustainable thing.

One country with a more vexing immediate inflation problem was the UK, which he said had a “particular issue regarding the labor market”. He said that the size of the workforce had fallen after the pandemic, which had increased the pressure on companies to pay people more.

The other global economic issue that has been troubling policymakers in recent months is trade with China. Led by the US seeking to “de-threat” its ties with Beijing, the G7 stressed the importance of resilience in global supply chains without seeking to “isolate” North American, European and Japanese economies from China Is.

For the OECD, traditionally a supporter of free trade, the new desire for national security to trump economic efficiency has been difficult. Lombardelli said she wanted to make sure everyone still understood the case for liberalized commerce and the exchange of goods and services.

“Trade is a benefit to people around the world. It brings huge benefits in terms of choice, prosperity and (lower) prices. It is perfectly sensible and appropriate for countries to think about supply chains . . . but What is important is to think in a way that does not undermine the broader rules-based global trading system.

In its outlook, the OECD noted that the US has made a significant cut in the proportion of its trade with China, even though the overall level of trade had increased since 2018. European countries had increased the proportion of their trade with Beijing.

Lombardelli said she intends to focus her efforts on using the OECD’s “best in the world” resources to provide the data needed to drive economic change and boost long-term growth prospects.

“Everyone gets very excited about monetary policy and short-term stuff, but what enables economies to grow and what changes people’s well-being . . . are these structural things. The OECD weighs its intellectual analysis into Can lead to questions.

The time has come for countries to get their public finances in better shape, the OECD’s new chief economist has said, as the coronavirus pandemic and energy crisis are fading into the background.

Speaking to the Financial Times in Paris ahead of the international organisation’s global forecast on Wednesday, Claire Lombardelli said the world economy was set to grow by 2.7 per cent in 2023 and 2.9 per cent in 2024.

The improved backdrop meant that now was the time for governments to rebuild their fiscal buffers, help fight high inflation and better position countries to deal with the costs of a growing population.

“We (Ukraine) have seen understandable and necessary financial aid in response to the war and the pandemic. , , (But) now the time has come that the massive fiscal support needs to be withdrawn,” she said.

Lombardelli, who joined the OECD from the UK Treasury, said offering support only “to those who really need it” would also be more consistent with central banks’ rate hikes.

The US and European countries have increased spending since the start of the pandemic. They now face much higher bills to finance that support following a rise in global borrowing costs. Lombardelli said there was “no expectation” about when the economy would reduce its debt load. “We don’t want debt levels to go up forever. It makes countries less resilient.”

You are viewing a snapshot of an interactive graphic. This is probably due to being offline or JavaScript is disabled in your browser.

Lombardelli said that although there may be exceptional circumstances in some countries, “on average, we need to reduce debt levels”.

The OECD’s main forecasts suggest the global economy is weathering the storm earlier this year when banks failed on both sides of the Atlantic. The OECD predicts the US will avoid recession, Germany will recover from its recent contraction in output and China’s growth will meet Beijing’s 5 per cent target.

“The global economy is growing and freeing itself from the shocks we have seen over the past few years,” she said, while pointing out that this year is expected to be weak by historical standards.

Lombardelli said the immediate priority should be to ensure that inflation in most advanced economies returns to its target level of around 2 percent, for which interest rates should remain at or slightly higher than their recent highs for some time. will need to grow.

“Both national and international forecasts have got the persistence of inflation wrong. So you may need to tighten monetary policy further.

She said central bankers will have to keep a close watch on wages especially for signs of inflation.

As part of its Economic Outlook, the OECD looked at nine countries to see whether companies were fueling inflation by increasing margins. It found only modest evidence of high profits, most of which were concentrated in mining and energy companies.

It was still worth being cautious about “greed,” Lombardelli said, because companies may still try to protect profit margins should workers call for wage increases.

“The effects are not massive,” she said. “But there is something there. Labor costs are going up, profits are going up, but we don’t think that (greed) is going to be a sustainable thing.

One country with a more vexing immediate inflation problem was the UK, which he said had a “particular issue regarding the labor market”. He said that the size of the workforce had fallen after the pandemic, which had increased the pressure on companies to pay people more.

The other global economic issue that has been troubling policymakers in recent months is trade with China. Led by the US seeking to “de-threat” its ties with Beijing, the G7 stressed the importance of resilience in global supply chains without seeking to “isolate” North American, European and Japanese economies from China Is.

For the OECD, traditionally a supporter of free trade, the new desire for national security to trump economic efficiency has been difficult. Lombardelli said she wanted to make sure everyone still understood the case for liberalized commerce and the exchange of goods and services.

“Trade is a benefit to people around the world. It brings huge benefits in terms of choice, prosperity and (lower) prices. It is perfectly sensible and appropriate for countries to think about supply chains . . . but What is important is to think in a way that does not undermine the broader rules-based global trading system.

In its outlook, the OECD noted that the US has made a significant cut in the proportion of its trade with China, even though the overall level of trade had increased since 2018. European countries had increased the proportion of their trade with Beijing.

Lombardelli said she intends to focus her efforts on using the OECD’s “best in the world” resources to provide the data needed to drive economic change and boost long-term growth prospects.

“Everyone gets very excited about monetary policy and short-term stuff, but what enables economies to grow and what changes people’s well-being . . . are these structural things. The OECD weighs its intellectual analysis into Can lead to questions.