Raphael Thys
Source: Coalition of Finance Ministers for Climate Action, Walmart, Target, Tech Vision / YouTube; 360b / Shutterstock.com
Economists predict that the next downturn will be different from the recession of early 2020. In its latest analysis, the OECD implies the global economy will be strong enough to outlast inflation thanks to last year's record growth. But this economic sustainability may be reliant on increased spending on services as the demand for goods declines.
Stay strong — The OECD says the upcoming economic slump will be uneven, but won't result in long-term stagflation. This contradicted the World Bank’s prediction from yesterday. The OECD says Europe’s growth is expected to be hit the most by Russian embargoes on oil and coal, while emerging-market economies will be hit hardest by food shortages. China is expected to grow by 4.4%, India by 6.9%, and Brazil by only 0.6%. It predicts that growth in both the US and EU will slow to 2.5% this year. But the OECD emphasized that most countries have gone through four quarters of strong growth, which should allow the global economy to weather this period of inflation. It expects inflation will begin to subside in the second half of 2022, if not completely slowed by 2023.
Shift to services — Inflation will continue to lower demand for consumer goods for the next few months. Some economists expect the next downturn to be industry-specific. The retailer Target expects smaller margins this quarter as it finds ways to ease an inventory glut. It’s begun to run discounts on goods that were previously in short supply. Many other retailers will face similar inventory level issues while people in advanced economies spend more on services. Service-based companies still stand to profit off the pent-up demand from lockdowns. Travel, dining, and live entertainment could see the most growth. Meanwhile, product-based companies will need to adjust their operating habits to survive this period of decreased consumer demand for goods.