The Organisation for Economic Co-operation and Development (OECD) said that the UK lags behind other developed nations in terms of economic performance.
Statistics show that the UK’s gross domestic product shrank by 0.4% from 2019 to 2022. Other member-nations of the OECD saw a 3.7% growth within the same period. The G-7 nations, which include Canada, Germany, France, Japan, Italy, the US, and the UK, all saw economic growth except the UK. The mismanagement of former UK Prime Minister Liz Truss exacerbates the poor performance of the UK.
“We think this happens mostly because of investment and consumption. Knowing the UK faces a difficult fiscal situation, we welcome what the government has done in the latest statement,” said Alvaro Pereira, the chief economist from the OECD.
“We think that it is very important to maintain fiscal prudence. And at the same time that you’re able to boost or try to introduce some kinds of reforms. To address some of the issues that have been plaguing the United Kingdom for a while. And that is very low productivity,” he added.
In response to the dismal economic conditions of the UK, Finance Minister Jeremy Hunt unveiled the expenditure plan of the country. The plan runs counter to the former proposal presented by Truss, which drew public backlash and ultimately led to her resignation.
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OECD expects more problems
The OECD released the Global Economic Outlook report, predicting that the world will slow down next year. However, the report added that the global economy will avoid the impending recession, with a cumulative growth of 2.2% in 2023 and 2.7% in 2014. OECD Secretary-General Mathias Cormann said that countries must pour their resources into fixing their current economic problems.
“(The) world is facing substantial headwinds and substantial risks over the horizon. (And) countries also need to take bold step. To address some of the longer-term challenges to lay the foundation for a stronger and more resilient economy,” Cormann said.
“We are facing a very challenging environment. I think one of the most dramatic pictures we have in our outlook is exactly how much countries are spending. In terms of energy as a percentage of GDP. And you can see that right now for OECD countries. It’s close to 18%, which is as high as we’ve seen in the oil crisis in the 70s and 80s,” Pereira added.
“We are facing a very large energy shock right now, which is lowering growth at the same time that it’s fueling inflation.”
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The energy problem
The energy crisis exacerbates the economic problem of countries worldwide. The OECD fears that if market prices soar, countries will feel the grave consequence of the supply cuts in energy.
“We expect that not only in the US but other parts of the world. So the decisiveness of monetary policy will start to have more and more of an impact. Therefore, our central forecast sees inflation peaking in many countries in the mid-half of next year or late this year. But mostly next year,” Pereira added.
“Particularly in 2024, we start having inflation rates much closer to target. So there is some light at the end of the tunnel. But we need not let go of monetary and fiscal tightening working hand in hand.”