Following Russia’s invasion of Ukraine, global economic growth is slowing more than was anticipated, according to the OECD, and the ensuing energy and inflation crises run the risk of deepening into recessions in the world’s leading economies.
The Organization for Economic Cooperation and Development has revealed that while global growth is still anticipated to be 3.0% this year, it is now anticipated to drop to 2.2% in 2023 from an estimate of 2.8% in June. The Paris-based policy conference had especially negative sentiments about the prospects for Europe, the continent whose economy is most directly affected by the consequences of Russia’s war in Ukraine.
The OECD’s predictions of global output in 2023, made before Russia attacked Ukraine, are now expected to be off by $2.8 trillion, meaning that income loss globally is set to hit roughly the size of the French economy.
“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said in a statement.
The 19-nation shared currency bloc is likely to spend at least some of the year in a recession, which is defined as two consecutive quarters of loss. The OECD estimated that the euro zone’s economic growth would slow from 3.1% this year to barely 0.3% in 2023. That represented a sharp fall from the OECD’s previous economic estimate from June, which had predicted the euro zone’s GDP would expand by 1.6% in 2019.
To narrow it down to the most affected economy on the continent, OECD predicted that Germany’s economy, which depends on Russian gas, will fall by 0.7% next year, down from a June prediction of 1.7% growth. The OECD cautioned that any energy supply interruptions would slow GDP and raise prices, particularly in Europe where they may slow activity by an additional 1.25 percentage points and raise inflation by 1.5 percentage points, sending many nations into recession for the entire year 2023.
Though far less dependent on imported energy than Europe, the United States was seen skidding into a downturn as the U.S. Federal Reserve jacks up interest rates to get a handle on inflation. The OECD forecast that the world’s biggest economy would slow from 1.5% growth this year to only 0.5% next year, down from June forecasts for 2.5% in 2022 and 1.2% in 2023.
Meanwhile, China’s strict measures to control the spread of COVID-19 this year meant that its economy was set to grow only 3.2% this year and 4.7% next year, whereas the OECD had previously expected 4.4% in 2022 and 4.9% in 2023. Despite the fast deteriorating outlook for major economies, the OECD said further rate hikes were needed to fight inflation, forecasting most major central banks’ policy rates would top 4% next year.
As governments move to cushion the effect on families and businesses by increasing support packages, the OECD recommended such efforts to be directed at those most in need and be transitory to curb cost and avoid increasing already high post-COVID debts.
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