According to the Organization for Economic Co-operation and Development (OECD), the world’s major economies are slipping into recession as the global energy and inflation crisis from Russia’s invasion of Ukraine has slashed growth more than previously forecast.
Heavy industry and reliance on expensive gas for domestic heating will plunge Germany, Italy and the UK into a prolonged recession, as global growth is projected by the OECD to slow to 2.2% in 2023 from its June forecast of 2.2% .
The global economy needs to grow about 4% to keep pace with the growing population, the OECD said, adding that many countries will have lower per capita incomes.
The OECD’s interim chief economist, lvaro Pereira, said the world was paying a heavy price for the Ukraine war and Russia’s decision to restrict access to gas supplies was higher than had been anticipated in June.
He said governments will need to encourage homes and businesses to reduce their consumption of gas and oil to help weather the tough winter.
Pereira also supported the determination of central banks to reduce inflation by raising interest rates. “We need to reduce the demand, there is no doubt about it. And the monetary and fiscal authorities need to work hand in hand to achieve this,” he said.
China’s growth rate is expected to slow to 3.2% this year – the lowest since the 1970s – leading to major trade deficits with neighbors South Korea, Vietnam and Japan, reducing their growth potential.
The OECD said a 4.7% recovery in China next year would be weaker than expected, as Beijing grapples with a wealth market and banking sector with heavy debt.
However, the Paris-based policy forum was most concerned with the point of view of Europe as a whole, which has come to the fore most directly as a result of Russia’s war in Ukraine.
The OECD forecasts that UK GDP growth will be flat in 2023. However, this estimate does not take into account the measures announced in Chancellor Quasi Quarteng’s mini-budget on Friday.
The OECD forecast a fall in the eurozone from 3.1% this year to just 0.3% in 2023, meaning many countries in the 19-member currency bloc will spend at least part of the year in recession. A bearish is defined as two straight quarters of contraction.
The OECD predicts that France could avoid a recession if it grows at 0.8% next year, but will suffer losses along with other European countries after falling 1.3 percentage points from June.
Russia will shrink by at least 5.5% this year and 4.5% in 2023. Berlin’s reliance on Russian gas before the invasion meant the German economy would shrink by 0.7% next year, down from June’s forecast of 1.7% growth.
The OECD warned that further disruptions in energy supply would stifle growth and fuel inflation, particularly in Europe, where they could set activity back another 1.25 percentage points and push inflation up 1.5 percentage points Many countries will be pushed into recession for the entire year of 2023.
The OECD forecast before Russia invades Ukraine is projecting to cut global output by $2.8tn (£2.6tn) next year – a loss of global income equal to that of the UK economy.
“The global economy has lost momentum in the wake of Russia’s unprovoked, unreasonable and illegal aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended recession,” the organization’s report said. Secretary General, Mathias Corman said.
A review of the outlook for the US found that although it is expected to grow slowly this year and remain in recession for part of 2023, it was less reliant than other countries on energy from Russia or other sources, making it less dependent on energy in 2024. Allowed for a strong recovery. ,
The OECD forecasts the world’s largest economy to slow from 1.5% growth this year to just 0.5% next year, down from its June forecast for 2.5% in 2022 and 1.2% in 2023.
World Bank officials have called on central banks to refrain from competitive rate hikes that would push the global economy into recession and hurt the economies of developing countries the most.
Still, the OECD said more rate hikes are needed to fight inflation, predicting that policy rates for most major central banks will reach at least 4% next year.