How did the world economy weather the energy shock?
The Organisation for Economic Co-operation and Development, known as the OECD, published its new forecast for the world economy in Paris on 23 September. According to the forecast the world economy will grow by 2.9 per cent this year. That is slightly more than the forecast from June, when the OECD expected growth of 2.8 per cent. However, growth is weaker than last year, when it was 3.4 per cent. For next year the organisation expects growth of 3 per cent, which is slightly less than in the summer.
Why did the economy not collapse, even though the war with Iran pushed up the prices of oil and gas? The OECD gives several reasons for this unexpected resilience. Many governments provided support to citizens and businesses so they could pay the high bills for energy. Countries outside the Gulf produced more oil and gas, and some states drew on their reserves of oil. In addition, companies invested a lot of money in artificial intelligence, which boosted production and trade.
For the US the OECD expects growth of 2.2 per cent, and for China of 4.5 per cent. The euro area will grow only by one per cent, both this year and next year. Germany got a better forecast because its exports rose unexpectedly in the first half of the year. The world is buying more German electronics for artificial intelligence, and the state is investing in defence and infrastructure. There is also good news for Italy and Spain, whose forecasts were raised as well. France, on the other hand, will grow only by 0.4 per cent.
The bad news is that inflation remains high. In the large economies of the G20 prices will rise by 4.1 per cent this year, while last year they rose by 3.4 per cent. Secretary-General Mathias Cormann warned that the reserves with which the world cushioned the shock are running out slowly.
The OECD also sees several dangers for the coming months. The war in the Middle East could last a long time, and a very strong El Niño could cause bad weather around the world. And if investments in artificial intelligence do not bring profits, growth could be much weaker. Whether the world will avoid a crisis depends mostly on when the war ends.