OECD: A sea of red arrows


**Much higher inflation and weaker global growth predicted in latest forecast.**

**“A sea of red arrows” pointing downward in the Organization for Economic Cooperation and Development forecast.**

**By Patricia Cohen, The New York Times, June 8, 2022**


**The Organization for Economic Cooperation and Development (OECD), which represents 38 countries including most of the world’s advanced economies, lowered its estimate of global growth to 3 percent this year from the 4.5 percent it predicted at the end of last year. It estimated that average inflation among the organization’s member nations was likely to run close to 9 percent this year, double its previous forecast.**

**Mathias Cormann, the organization’s secretary general, repeatedly emphasized that “we are not projecting a recession” at this time, but he acknowledged that risks to the forecast were on the downside, and would worsen if the [Ukraine] war dragged on....**

**Looking at a chart detailing each country’s growth during a news conference, Laurence Boone, the chief economist, referred to the “sea of red arrows” pointing downward....** [end quote]

Yesterday, the World Bank reported an almost-identical forecast, 2.9% growth.

Here’s the link to the OECD report.

**The Price of War, by Laurence Boone, OECD Chief Economist and Deputy Secretary-General**

**The global economy is set to weaken sharply in our projections. We estimate world growth to be 3% in 2022 – down from the 4½ per cent we projected last December - and 2¾ per cent in 2023.**

**Today, the world is producing enough cereals to feed everyone, but prices are very high and the risk is that this production will not reach those who need it most. ...**

**Wherever inflation is driven by over-buoyant demand, as in the United States, monetary policy can tighten faster to reduce such excess. ...** [end quote]

Macro takeaways for investors:

  1. The OECD and World Bank agree that the world economy will slow in 2022 and probably 2023, though they don’t predict a recession. A slowing world economy will reduce sales of multinational companies, depressing their stock prices.

  2. Both the World Bank and OECD encouraged the U.S. Federal Reserve to increase interest rates to slow inflation. That should help stiffen the spine of the Fed when the markets tank. Inflation is job one. Even though the Fed has been transparent about raising the fed funds rate 1% by August, they have not said what they will do in September and later. That depends on inflation.

The Fed’s dot plot shows raises in 2022 and also 2023. The Fed wants a “neutral” fed funds rate. The dot plot shows a longer run fed funds rate of 2.5%. The effective fed funds rate is currently 0.83%.



  1. If the inflation rate descends to 2.5%, the eventual anticipated fed funds rate of 2.5% would be a real rate of 0%. But if inflation stays higher, the real yield would be negative and thus stimulative and not neutral. This would result in a 1970s-like situation where inflation continues to rise.

  2. The most probable scenario for the next year or two is stagflation. All METARs who lived through the 1970s are very familiar with this. The nasty double bear market in 1973-1975 should be reviewed by all stock market investors since this may repeat in 2022-2023. The second-longest bear market in history (after the Great Depression) was grueling. Rather than starting with a sharp crash, the market’s slide began gradually in early 1973 amid rising inflation and slowing economic growth.

  3. That’s assuming stagnation and not outright recession. The risk is high that the Fed will cause a recession by raising the fed funds rate and also longer-term yields by selling Treasuries and mortgage bonds.

The 2020 Covid recession was so fast and the Fed-juiced market recovery so quick and exhilirating that investors may forget the more typical slow, grinding market slides of the past. The next couple of years will be a marathon, not a sprint.



Here’s a more recent Federal Reserve fed funds rate dot plot.


The Federal Reserve’s so-called dot plot, which the U.S. central bank uses to signal its outlook for the path of interest rates, shows officials expect to raise the fed funds rate six more times this year, based on median projections.

The Treasury yield curve is still rising. The 2-year Treasury is 2.75% and the 10-year is 3.0%.



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If one assumes that inflation is approximately evenly spread across the economy, then doesn’t it follow that global inflation of 9% and GDP growth of 3% is actually a global contraction of 6%? Or am I missing something important here?


If one assumes that inflation is approximately evenly spread across the economy, then doesn’t it follow that global inflation of 9% and GDP growth of 3% is actually a global contraction of 6%? Or am I missing something important here?

GDP numbers are usually adjusted for inflation; look for the phrase ‘real GDP’.

Real gross domestic product (GDP) decreased at an annual rate of 1.5 percent in the first quarter of 2022, following an increase of 6.9 percent in the fourth quarter of 2021.

The Reserve Bank of India (RBI) on Wednesday kept unchanged its FY23 real economic growth projection for the country at 7.2%…