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The OECD headquarters, in Paris, on Sept. 3, 2009.Charles Platiau/Reuters

The main risk to an otherwise upbeat global economic outlook is that the current inflation spike proves longer and rises further than currently expected, the OECD said on Wednesday.

Global growth is set to hit 5.6 per cent this year before moderating to 4.5 per cent in 2022 and 3.2 per cent in 2023, the Organisation for Economic Co-operation and Development said in its latest economic outlook.

That was little changed from a previous forecast of 5.7 per cent for 2021, while the forecast for 2022 was unchanged. The OECD did not produce estimates for 2023 until now.

With the global economy rebounding strongly, companies are struggling to meet a postpandemic snapback in customer demand, causing inflation to shoot up around the world as bottlenecks have emerged in global supply chains.

Like most policy-makers, the OECD said that the spike was expected to be transitory and fade as demand and production returned to normal.

“The main risk, however, is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected,” the OECD said.

Provided that that risk did not materialize, inflation in the OECD as a whole was likely close to peaking at nearly 5 per cent and would gradually pull back to about 3 per cent by 2023, the Paris-based organization said.

Against that backdrop, the best thing central banks can do for now is wait for supply tensions to ease and signal they will act if necessary, the OECD said.

Federal Reserve Chair Jerome Powell said on Tuesday that the U.S. central bank should consider winding down of its large-scale bond purchases faster amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.

In the United States, the OECD forecast the world’s biggest economy would grow 5.6 per cent this year, 3.7 per cent in 2022 and 2.4 per cent in 2023, down from previous projections of 6 per cent in 2021 and 3.9 per cent in 2022.

The outlook for China was also less optimistic, with growth forecast at 8.1 per cent in 2021 and 5.1 per cent in both 2022 and 2023 whereas previously the OECD had expected 8.5 per cent in 2021 and 5.8 per cent in 2022.

However, the outlook was slightly more upbeat for the euro zone than previously expected with growth expected at 5.2 per cent in 2021, 4.3 per cent in 2022 and 2.5 per cent in 2023 compared with previous forecasts of 5.3 per cent in 2021 and 4.6 per cent 2022.

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