Risks to the global economy have worsened as the conflict in the Middle East drags on, OECD Secretary General Mathias Cormann said on the sidelines of a Group of Seven meeting.
“The overall assessment is that it’s putting downward pressure on growth and upward pressure on inflation,” Cormann said on Tuesday in an interview with Bloomberg Television. “We provided an initial assessment in our interim economic assessment in March, but we will be revising that assessment in the next few weeks in a formal sense. But clearly downward pressure on growth and upward pressure on inflation.”
The Paris-based OECD was already the first major international institution to warn in March that the Iran war would fuel price increases and dampen economic activity. It is due to update its forecasts on June 3.
Finance officials gathering for a two-day meeting in the French capital on Monday set out to discuss enduring mismatches in the global economy including the US budget deficit and China’s vast trade surplus.
But a bond market rout injected urgency into the get-together, forcing ministers and central bankers to reckon with growing policy challenges from the shock of rising oil prices.
Cormann said the challenge for central banks will be to deal with the combination of elevated inflation risks and weaker economic activity as they weigh possible interest-rate increases.
“Normally you would be able to see through an energy price shock but of course if it starts contaminating prices more broadly, if you see increases in wages as secondary effects then central banks will need to take action even if the economy growth outlook is somewhat weaker,” Cormann said.
