Weekly Digest: OECD Cuts Growth Forecast, EU Inflation to Peak

Newsdesk

4 minutes read

Jun 9, 2022

OECD has lowered growth forecast for this year as the world is facing rising inflation fueled by the ongoing war in Ukraine.

09/06/22: The OECD has lowered its growth forecast for this year, Eurozone inflation is expected to peak, U.K. economy is facing stagnation. And more.

Investment news

In the run-up to the last inflation reading before the Fed's policy meeting this month, the gold price was largely driven by a rally in the dollar and U.S. Treasury yields.

Here’s how the price of gold, silver, platinum, and palladium have changed over the past week:

a table showing how the prices of gold, silver, platinum and palladium have changed over the past week.

Investors are bracing for one of the European Central Bank's most important meetings in years, where policymakers are expected to pave the way for the bank's first rate hike since 2011. (Bloomberg)

While the bank is widely expected to keep rates unchanged on Thursday, the question is whether ECB President Christine Lagarde will temper expectations for future 50-basis-point hikes, which have been building in recent weeks as the region's record-breaking rate of inflation accelerates.

Euro sign signaling rising inflation in the Eurozone which is expected to peak later this year before slowing down through 2023.

Inflation in the Eurozone is expected to peak close to 8% in the third quarter of 2022, before declining through 2023. (Bloomberg)

But there are two upside risks:

  • As winter approaches, Russia might have an incentive to engineer yet another energy price spike.
  • High inflation could interact with a tight labor market to boost wage growth, which is the ECB's main concern because policymakers would be forced to raise rates more quickly.

Read our SPOTLIGHT to learn more about inflation in France, Germany, Italy, Switzerland, and the U.K.

The OECD has cut its growth forecasts for this year but has downplayed the risk of a prolonged period of "stagflation." (CNBC)

“The invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-COVID policy, has generated a new set of adverse shocks,” the OECD said in its latest economic outlook.

Read our SPOTLIGHT to learn more about stagflation and what it could mean for gold investors.

The cost of filling up a standard car in the United Kingdom, which was already at an all-time high, increased by the most in 17 years, underscoring the country's inflationary pressures caused by rising fuel prices. (Bloomberg)

“These are unprecedented times. Sadly, it seems we are still some way from the peak,” said RAC fuel spokesman Simon Williams.

The OECD has predicted that the UK economy will stall next year, with only Russia performing worse among major economies, and has urged Prime Minister Boris Johnson's government to reduce taxes. (Bloomberg)

“The government should consider slowing fiscal consolidation to support growth,” the OECD said.

The Turkish lira fell below 17 per dollar for the first time since December, triggering a rush for foreign currency after President Recep Tayyip Erdogan ruled out raising interest rates despite rising inflation. (Bloomberg)

The Turkish flag and national currency as a symbol of record high inflation and Erdogan’s refusal to raise interest rates to tackle rising prices.

“The government should consider slowing fiscal consolidation to support growth,” the OECD said.

The Turkish lira fell below 17 per dollar for the first time since December, triggering a rush for foreign currency after President Recep Tayyip Erdogan ruled out raising interest rates despite rising inflation. (Bloomberg)

“Erdogan’s comments are nothing new, but with inflation at 73% year-on-year, his comments give the situation a pretty surreal quality,” said Peter Kinsella, the head of currency strategy at Union Bancaire Privee UBP.

Read our SPOTLIGHT to see what Turkey’s inflation feels like in real life.

Opinion

Nobel Laureate economist Robert Shiller sees a "good chance" of a US recession, which he believes will be fueled in part by a "self-fulfilling prophecy" as investors, businesses, and consumers become increasingly concerned about a downturn. (Bloomberg)

“The fear can lead to the actuality,” said Yale University professor Shiller and author of the 2019 book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.”

What else is happening

Turkish efforts to help alleviate a global food crisis by negotiating safe passage for grain stuck in Black Sea ports were met with opposition, with Ukraine accusing Russia of imposing unreasonable conditions and the Kremlin insisting that free shipment depended on the lifting of sanctions. (Reuters)

The war between Russia and Ukraine, the world's third and fourth largest grain exporters, has pushed up food prices and posed a threat to global food supplies.

A Ukrainian soldier in Ukraine flag colors defending the country following Russia’s invasion of Ukraine on February 24.

In the face of a fierce Russian assault, Ukrainian forces pulled back to the outskirts of the industrial city of Sievierodonetsk, signaling yet another major shift in momentum in one of the war's bloodiest battles. (Reuters)

"Our (forces) now again control only the outskirts of the city. But the fighting is still going on, our (forces) are defending Sievierodonetsk, it is impossible to say the Russians completely control the city," the regional governor said.

And finally…

Scientists are getting closer to solving a "cosmic mystery" that has lingered for years after powerful bursts of radio waves emanating from a distant dwarf galaxy were detected using a massive telescope in China. (Reuters)

a picture of the Milky Way after scientists got closer to resolving the cosmic mystery of fast radio bursts.

Fast radio bursts, which involve pulses of radio-frequency electromagnetic radiation originating from places inside our Milky Way and other galaxies, have baffled astronomers since 2007.

 

See you next week!

 

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