OECD cuts world growth forecast, warns of Omicron threat

PARIS

The Organization for Economic Co-operation and Development (OECD) has revised up its 2021 growth forecast for Turkey by 0.6 percentage points to 9 percent.

“In the absence of further shocks, GDP growth is projected to be 9 percent in 2021 before easing to 3.3 percent in 2022 and 3.9 percent in 2023,” the OECD said in its Economic Outlook report released on Dec. 1.

“Growth has been buoyant, pulled by very strong exports. Manufacturers have seized the opportunities arising in their traditional European and new overseas markets following disruptions in international value chains,” said the report on the Turkish economy.

Turkey’s economy posted a gross domestic product (GDP) growth of 7.4 percent in the third quarter compared with the same period in 2020, the Turkish Statistical Institute (TÜİK) announced on Nov. 30.

Annualized GDP grew to around $795 billion in the third quarter from nearly $765 billion through the previous three-month period.

The Turkish economy posted annual growth rates of 7.4 percent and 22 percent in the first two quarters of this year, respectively.

“Substantial real exchange rate depreciation has boosted net exports, but has severely destabilized relative prices, market expectations and risk perceptions. The competitiveness and profit margins of small-size manufacturers, who generally rely on short-term commercial loans denominated in domestic currency, have benefitted. Large firms integrated in global value chains, who import their technological inputs and rely on long-term loans denominated in foreign currency, have been negatively affected,” the OECD report also said.

İt also warned that “highly indebted firms and households who relied on subsidized loans during the pandemic ... may face strains under rapidly increasing market interest rates and high inflation.”

Global economy to expand 5.6 percent

The OECD warned that the Omicron coronavirus variant threatens the global economic recovery as it lowered the growth outlook for 2021 and appealed for a swifter rollout of COVID-19 vaccines.

The global economy is now expected to expand by 5.6 percent this year, down from an earlier forecast of 5.7 percent, the OECD said and warned that low vaccination areas could create “breeding grounds” for deadlier virus mutations.
Its forecast for 2022 remains unchanged at 4.5 percent, but the report was released only days after Omicron was detected.

“We are concerned that the new variant of the virus, the Omicron strain, is further adding to the already high levels of uncertainty and risks, and that could be a threat to the recovery,” OECD chief economist Laurence Boone said at a press conference.

While the OECD said it was “cautiously optimistic” about the recovery, it warned that health, high inflation, supply chain bottlenecks, and potential policy missteps are “all key concerns.”

Analysts at Oxford Economics say the new strain could shave 0.25 percentage points off global growth next year if it causes mild effects, but it would cost 2 percentage points if it is more dangerous and a large part of the global population was forced into lockdowns.

The OECD said it expected inflation to peak at the turn of the year before receding gradually in the 38-nation OECD, which includes leading developed and emerging countries.

Soaring inflation has caused commotion in the markets as investors fear that central banks will raise interest rates sooner than expected to tame runaway prices.

The OECD urged monetary policymakers to “communicate clearly” about how far they will tolerate inflation exceeding their targets.