According to the Organization for Economic Co-operation and Development (OECD), the UK performed poorly compared to other developed countries.
Statistics show that the UK’s gross domestic product decreased by 0.4% between 2019 and 2022. Within the same time frame, growth among OECD member countries was 3.7%. Except for the UK, all G-7 countries—Canada, Germany, France, Japan, Italy, the US, and the UK—saw economic growth. The lousy performance of the UK is compounded by former UK Prime Minister Liz Truss’ weak management.
“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.
UK Finance Minister Jeremy Hunt revealed the country’s spending plan in response to the country’s dire economic circumstances. The strategy opposes Truss’s earlier proposal, which received negative feedback from the general public and ultimately resulted in her dismissal.
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OECD projects more problem
The world economy will slow down in 2023, according to the Global Economic Outlook report from the OECD. With cumulative growth of 2.2% in 2023 and 2.7% in 2014, the analysis also stated that the world economy would avoid the looming recession. However, countries need to invest heavily in resolving their present economic issues, according to OECD Secretary-General Mathias Cormann.
“(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 exactly 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.”
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Problem with the energy
The world’s economies are currently experiencing an energy crisis. The OECD is concerned that if market prices rise, nations will suffer severely due to the reductions in energy supplies.
“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
Source: CNBC
