According to the Organization for Economic Cooperation and Development (OECD), the United Kingdom falls behind other industrialized countries in terms of economic growth.
According to statistics, the UK’s GDP fell by 0.4% between 2019 and 2022. Other OECD members saw 3.7% growth during the same period. Except for the United Kingdom, the G-7 nations of Canada, Germany, France, Japan, Italy, the United States, and the United Kingdom all had economic growth. Former UK Prime Minister Liz Truss’ mishandling exacerbates the UK’s low performance.
“We think this happens mostly because of investment and consumption. Knowing the UK faces a difficult fiscal situation, we welcome what the government has done in the latest statement,” said Alvaro Pereira, the chief economist from the OECD.
“We think that it is very important to maintain fiscal prudence. And at the same time that you’re able to boost or try to introduce some kinds of reforms. To address some of the issues that have been plaguing the United Kingdom for a while. And that is very low productivity,” he added.
In response to the UK’s poor economic conditions, Finance Minister Jeremy Hunt released the country’s spending plan. The idea contradicts Truss’ previous suggestion, which sparked public outrage and eventually led to her removal.
OECD predicts additional problems
According to the OECD’s Global Economic Outlook report, the globe will slow down next year. The analysis does, however, predict that the world economy will avoid a recession, with total growth of 2.2% in 2023 and 2.7% in 2014. According to OECD Secretary-General Mathias Cormann, countries must focus on resolving their present economic challenges.
“(The) world is facing substantial headwinds and substantial risks over the horizon. (And) countries also need to take bold steps. To address some of the longer-term challenges to lay the foundation for a stronger and more resilient economy,” Cormann said.
“We are facing a very challenging environment. I think one of the most dramatic pictures we have in our outlook is how much countries are spending. In terms of energy as a percentage of GDP. And you can see that right now for OECD countries. It’s close to 18%, which is as high as we’ve seen in the oil crisis in the 70s and 80s,” Pereira added.
“We are facing a very large energy shock right now, which is lowering growth at the same time that it’s fueling inflation.”
The energy cutbacks
The energy issue is exacerbating the global economic crisis. The OECD fears that if market prices rise, nations will bear the brunt of decreasing energy supply.
“We expect that not only in the US but other parts of the world. So the decisiveness of monetary policy will start to have more and more impact. Therefore, our central forecast sees inflation peaking in many countries in the mid-half of next year or late this year. But mostly next year,” Pereira added.
“Particularly in 2024, we start having inflation rates much closer to target. So there is some light at the end of the tunnel. But we need not let go of monetary and fiscal tightening working hand in hand.”
Photo Credit: Ian Langsdon
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