The main risk to an otherwise bright global economic outlook, according to the OECD, is that the current inflation spike lasts longer and climbs further than currently expected.
The OECD said in its latest economic projection that global growth will reach 5.6% this year before slowing to 4.5% in 2022 and 3.2% in 2023. The projection for 2021 was little changed from a previous forecast of 5.7%, and the forecast for 2022 was unchanged. Until now, the OECD had not released predictions for 2023.
With the global economy rebounding strongly, businesses are straining to satisfy a post-pandemic surge in customer demand, leading global inflation to rise as supply chain bottlenecks appear.
The OECD, like most policymakers, predicted that the surge would be transitory and fade when demand and output returned to normal.
"The primary risk is that inflation continues to surprise on the upside, pushing major central banks to tighten monetary policy sooner and to a greater amount than expected," the OECD said.
Inflation in the OECD as a whole was likely close to peaking at nearly 5% and would gradually drop back to around 3% by 2023 if that risk did not materialise. In light of this, the best thing central banks can do for the time being is wait for supply tensions to ease before signalling that they will act if necessary, they added.
The OECD predicted that the US economy will grow 5.6% this year, 3.7% in 2022, and 2.4% in 2023, down from previous forecasts of 6.0% in 2021 and 3.9% in 2022. China's outlook was similarly less optimistic, with growth estimated at 8.1% in 2021 and 5.1% in both 2022 and 2023, compared to 8.5% in 2021 and 5.8% in 2022 as predicted by the OECD.
However, the outlook for the Eurozone was slightly brighter than previously anticipated, with growth estimated at 5.2% in 2021, 4.3% in 2022, and 2.5% in 2023, compared to 5.3% in 2021 and 4.6% in 2022.