International Economics: IB Economics

The OECD are reporting that global food price inflation has fallen to pre-Ukraine levels, to 5.3% in February. This is a good sign for inflation but wage growth is still high. 

The latest OECD economic forecast suggests a slowing of global growth, although only Germany and Argentina are likely to see their economies decline in size this year. However, from the UK's perspective, the fact that our average inflation - predicted to be 7.2% - will be the third highest in the G20 must be a cause for concern.

Jeffrey Frankel writes a Project Syndicate piece arguing that a global recession is not inevitable, arguing that since World War II global growth has rarely dipped below 0% for one quarter, never mind two. And on that basis alone, he seems to think that 2023 is likely to be similar, given that most growth forecasts still have the global economy growing by around 2%.

Hardly earth-shattering stuff, or likely to damage his reputation, that prediction then, is it? 

It's been a while since we heard about this - but despite widespread acclaim for the notion of a minimum global corporate tax rate, it's been postponed until 2024 and there are some who doubt whether it will ever get implemented. 

In the event that it doesn't get introduced, I have to say that it would be one of the great 'smoke and mirrors' bits of policymaking; I suspect most people think that it's already in operation.

The OECD sees the Ukraine conflict as lifting global inflation to 7.5% and is asking for government intervention to help the poorest households pay their bills. It really is a global phenomenon, and one that you should be capable of analysing using AD-AS analysis.

The OECD global minimum corporate tax rate has been agreed; 136 countries will now have a minimum rate of 15%, including one or two who at first resisted - notably Ireland, Hungary and Estonia.

Ostensibly a good thing, but the devil is in the detail. What will happen to global tax revenues from MNCs? And what are the implications for individual economies? I will reserve judgment for now.

The OECD is forecasting higher inflation across the developed world, with the UK expected to have 3% inflation by the end of 2022, but falling inflation in a number of other economies. 

The causes? Self-evident to be honest - higher raw material costs, supply chain issues and higher levels of consumer demand all play a part and can be shown by elementary AD-AS analysis. 

The OECD has revised its forecasts for both global and UK growth upwards - to 5.6% and 5.1% respectively. That said, these forecasts are contingent upon the successful rollout of the coronavirus vaccine and they also suggested that there will be some ongoing costs of the pandemic to bear too. 

The OECD has spoken out, suggesting that there's a need for consensus regarding a digital tax, and its absence makes a trade war ever more likely. 

The fear is that the Americans argue that this is an unfair tax on US tech giants, and have retaliated by threatening tariffs on French produce in particular. 

All you want to know about the global impact of coronavirus.

The demand for alarmist newspaper articles has risen - as has the demand for journalists to write them. Derived demand.

This article shines a light on the scale of global tax avoidance, with Nicholas Shaxson claiming that the effective rate of tax paid by the big five tech firms is around 3% of their profit, whereas those SMEs they compewte with are, on average, paying 14% more in tax, according to the French authorities.

However, he's also worried that the OECD isn't best placed to tackle the issue, and argues that there needs to be a unitary tax approach, which seeks to tax these companies fairly.

It's fascinating to see how climate change has become a live issue in the very recent past. In this case, the OECD have been explicit in suggesting that a global slowdown has, in part, been precipated by a failure to attend to climate change concerns, and that as a result investment is threatened. 

Without a clear sense of direction on carbon prices, standards and regulation, and without the necessary public investment, businesses will put off investment decisions, with dire consequences for growth and employment," the OECD says - according to the article.

Their solutions? A mixture of government intervention and better use of the market to price carbon. "

It seems that the French government is on the point of endorsing lower taxes, as a result of the 'great debate'.

However, this might prove problematic: France has a very high level of taxation - the highest in the OECD, at 46.2% of GDP - but a similarly high level of public spending. It will be interesting to see how President Macron balances the two, or indeed if he is going to be able to. 

The OECD is warning central banks that their race is not yet run as far as monetary policy is concerned, and that they need to keep their eye on the ball. And presumably stop mixing their sporting metaphors but that's for another day. 

Either way, they are concerned that bankers might be tempted into cutting interest rates earlier than would be optimal and perhaps stoking another burst of inflation, when tighter monetary policy might be more appropriate.

An interesting pronouncement in the current environment - with the OECD advising that central banks should keep interest rates high despite the current uncertainty in financial markets after the collapse of Silicon Valley Bank and the worries about Credit Suisse. 

However, the international financial organisation is of the view that there's still a need for relatively tight monetary policy to overcome the scourge of inflation, even though there are a growing number of commentators opposed to this position. 

The OECD forecast recession ahead for much of Europe, in the wake of the invasion of Ukraine...

The Guardian focused on the inflation angle, this BBC piece, penned by Dharshini David focuses rather more on the impact of the conflict in Ukraine on global economic growth, with the organisation expecting a 1% cut in global growth as a result. 

Of course, for others, the effect will be more dramatic: the OECD think there will be a recession in Russia, and those countries that border the conflict are going to be worst affected, not least because of the influx of refugees in the short-term.

Wow! Another for the "That's Why They Earn the Big Bucks!" file. the OECD suggests that the Omicron variant could trigger a global slowdown. Who would have thought it?

It seems as thought the Irish are abandoning their 12.5% corporate tax rate and join the OECD's global minimum tax rate, and accept a corporate tax rate of 15%.

However, before you get too excited, the rate is only going to apply to companies earning more than 750 million Euros a year across the globe. One wonders whether we might see a number of leading companies look to split up large businesses to avoid paying a higher rate of tax? 

The OECD believes that inheritance tax should rise in the wake of the pandemic given that wealth inequality has grown over the period, and is likely to continue to rise. 

However, it's a difficult balance to strike: whilst existing tax relief schemes appear to benefit the wealthiest in society, any increase in inheritance tax is likely to increase tax avoidance and this may mean that an increase in the rate of taxation could see lower tax receipts. 

The OECD view of 2021 is not an encouraging one: Laurence Boone, the chief economist foresees that we could face these circumstances for the next year, and that in this light we will struggle to get back to pre-pandemic levels by the end of the year. 

The speed of the recovery is also going to be unequal: China is expected to grow by 8%, whereas other OECD members are going to grow by around 3%.

That's why they earn the big bucks!

The Head of the OECD, Angel Gurria, has suggested that the extent of the coronavirus is already larger than the 2008 financial crisis, and that the global economy is going to take time to recover. 

It's making the OECD's already revised growth forecast of 1.5% for the year look somewhat foolish already. However, had he gone on to mention 'scarring' or the possibility of 'hysteresis' he might have moved into the top bracket of the mark scheme.

This BBC article looks at the impact of coronavirus on global growth - with the OECD predicting that global growth could halve, if a pandemic occurs. 

Not much of a surprise but there you go - the impact on an interconnected global economy could see the lowest global growth rate since 2009.

The Head of the OECD has called for nations planning to introduce digital technolgy taxes - such as France and the UK - to hold fire. For now.

He wants there to be global agreement about the nature of such taxes - but given the vested interest of the United States, it's tough to see what form a solution would take. And even the vested interests argument is complex: tech companies themselves seem willing to pay an "appropriate amount" of tax; the President, however, may see things in another light.

The OECD is looking at a way of taxing multinational tech giants, via a global digital services tax, in the hope of giving governments greater power to regulate them.

However, for all the good intentions, I'll believe it when I see it.