Tag Archives: OECD

OECD says inflation is main risk to economic outlook

PARIS (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% this year before moderating to 4.5% in 2022 and 3.2% in 2023, the Organization for Economic Cooperation and Development said in its latest economic outlook.

That was little changed from a previous forecast of 5.7% 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 post-pandemic snap-back in customer demand, causing inflation to shoot up worldwide as bottlenecks have emerged in global supply chains.

Like most policymakers, 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% and would gradually pull back to about 3% 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% this year, 3.7% in 2022 and 2.4% in 2023, down from previous projections of 6.0% in 2021 and 3.9% in 2022.

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

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

(Reporting by Leigh Thomas, Editing by William Maclean)

Milestone global corporate tax deal finally gets agreement

By Leigh Thomas

PARIS (Reuters) – A global deal to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation has been agreed after Ireland, Estonia and Hungary agreed to sign up to the elusive landmark accord.

The agreement aims to end a four-decade-long “race to the bottom” by governments that have sought to attract investment and jobs by taxing multinational companies only lightly and allowing them to shop around for low tax rates.

Negotiations have been going on for four years, moving online during the pandemic, with support for a deal from U.S. President Joe Biden and the costs of COVID-19 giving additional impetus in recent months.

Out of the 140 countries involved, 136 supported the deal with developing countries Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.

The Paris-based Organization for Economic Cooperation and Development, which has been leading the talks, said that the deal would cover 90% of the global economy.

“Today we have taken another important step towards more tax justice,” German Finance Minister Olaf Scholz said in a statement emailed to Reuters.

“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business,” Scholz’s British counterpart Rishi Sunak said.

The agreement will set a minimum corporate tax rate of 15% and let governments tax a greater share of foreign multinationals’ profits.

U.S. Treasury Secretary Yellen called the deal a victory for American families as well as international business.

“We’ve turned tireless negotiations into decades of increased prosperity – for both America and the world. Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” Yellen said in a statement.

The OECD said that the minimum rate would see countries collect around $150 billion in new revenues annually while taxing rights on more than $125 billion of profit would be shifted to countries where big multinationals earn their income.

The deal aims to prevent big groups from booking profits in low-tax countries like Ireland regardless of where their clients are, an issue that has become ever more pressing with the rise of tech giants that easily do business across borders.

Ireland, Estonia and Hungary, all low tax countries that had held out, dropped their objections this week as a compromise emerged on a deduction from the minimum rate for multinationals with real physical business activities abroad.

But some developing countries seeking a higher minimum tax rate say their interests have been sidelined to accommodate the interests of richer countries like Ireland, which had refused to sign a deal with a minimum tax rate higher than 15%.

Argentine Economy Minister Martin Guzman said on Thursday that proposals on the table forced developing countries to chose between “something bad and something worse”.

The OECD said that the deal would next go to the Group of 20 economic powers to formally endorse at a finance ministers’ meeting in Washington next Wednesday and then on to a G20 leaders summit at the end of the month in Rome for final approval.

However, there remains some question about the U.S. position which depends in part on tough domestic tax reform negotiations going on in Congress.

Countries that back the deal are supposed to bring it onto their law books next year so that it can take effect from 2023, which many officials close to the talks describe as extremely tight.

(Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin and Elizabeth Piper in London, Editing by Catherine Evans and Alexander Smith)

Global growth headed for six-year high: OECD

FILE PHOTO: Construction cranes are seen in downtown Los Angeles, California, U.S., May 22, 2017. REUTERS/Lucy Nicholson

By Leigh Thomas

PARIS (Reuters) – The global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States, the OECD forecast on Wednesday.

The global economy is set to grow 3.5 percent this year before nudging up to 3.6 percent in 2018, the Paris-based Organisation for Economic Cooperation and Development said, updating its forecasts in its latest Economic Outlook.

That estimate for 2017 was not only a slight improvement from its last estimate in March for 3.3 percent growth, but it would also be the best performance since 2011.

Yet despite this brighter outlook, growth would nonetheless fall disappointingly short of rates seen before the 2008-2009 financial crisis, OECD Secretary General Angel Gurria said.

“Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre,” Gurria told Reuters in an interview.

“It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better,” he added.

While recovering trade and investment flows were supporting the improving economic outlook, Gurria said barriers in the form of protectionism and regulations needed to be lifted to ensure stronger growth.

The improvement would also not be enough to satisfy people’s expectations for better standards of living and reduce growing income inequality, he said.

The OECD saw an improved global outlook even though it downgraded its estimates for the United States, despite a weaker dollar boosting exports and tax cuts supporting household spending and business investment.

The OECD forecast U.S. growth of 2.1 percent this year and 2.4 percent next year, down from estimates in March of 2.4 percent and 2.8 percent, respectively.

OECD chief economist Catherine Mann attributed the downgraded outlook to delays in the Trump administration pushing ahead with planned tax cuts and infrastructure spending.

The weaker U.S. outlook was offset by slightly improved perspectives for the euro zone, Japan and China.

EURO ZONE LOOKING BETTER

Boosted by firmer German growth, the euro zone economy was seen growing 1.8 percent both this and next year, up from 1.6 percent for both years.

Lifted by improving international trade in Asia and fiscal stimulus, Japanese growth was seen at 1.4 percent this year before slowing to 1.0 percent next year, both slightly raised from the OECD’s March estimates of 1.2 percent and 0.8 percent respectively.

The OECD also marginally nudged up its estimates for growth in China to 6.6 percent this year and 6.4 percent in 2018, boosted by stimulus spending.

That in turn was supporting strong imports and helping to fuel a revival in Asian trade. As a result, global trade volumes were seen growing 4.6 percent this year, nearly double the rate seen in 2016.

Among the risks to the OECD’s outlook, it warned that the growing divergence between monetary policy rates among the major central banks raised the chances for financial market volatility.

The OECD also saw a potential for “swift snap-back” in U.S. long-term interest rates when the Federal Reserve decides to reduce the size of its balance sheet, especially if it comes at a time of rising policy rates.

(Reporting by Leigh Thomas; Editing by Hugh Lawson)