The OECD does not predict a global recession, but said the outlook for this year and next is “very, very bleak.”
Hobbled by high interest rates, severe inflation and Russia's war with Ukraine, the global economy is expected to grow only slowly this year, with even more gradual expansion expected in 2023.
That was the somber forecast released Tuesday by the Paris-based Organization for Economic Co-operation and Development. The OECD estimates that global economic growth this year will be just 3.1%, significantly slower than 2021's strong 5.9%.
The OECD predicts that next year will be even worse, with international economic growth expected to remain at 2.2%.
“It is true that we are not predicting a global recession,” OECD Secretary-General Matthias Cormann said at a press conference. “But this is a very difficult outlook, and I don't think anyone can take comfort in a forecast of 2.2% global growth.”
The OECD, made up of 38 member countries, works to promote international trade and prosperity and publishes regular reports and analyses. According to figures from Organic Action, 18 percent of member states' economic output was spent on energy after Russia's invasion of Ukraine sent oil and natural gas prices soaring. As a result, the world is facing an energy crisis on a scale comparable to the two historic energy price spikes of the 1970s, which also slowed growth and triggered inflation.
Mr Cormann said inflation, exacerbated primarily by soaring energy prices, was “widespread and persistent”, while “real household income in many countries remained low despite support measures being rolled out by many governments”. “Revenues are decreasing,” he said.
global slowdown
The Federal Reserve's aggressive efforts to rein in inflation through high interest rates (it has raised its benchmark interest rate six times this year with significant increases) has brought the U.S. economy to a near standstill, the OECD said in its latest forecast. I predict that it will fall into The report expects the world's largest economy to grow by just 1.8% this year, down from 5.9% in 2021, 0.5% in 2023 and 1% in 2024. do.
Ukraine war causes inflation to rise to historic levels [File: Wolfgang Rattay//Reuters]
That grim outlook is widely shared. Most economists expect the United States to fall into at least a mild recession next year, but the OECD does not specifically predict a recession.
The report predicts that although U.S. inflation is slowing, it will remain well above the Fed's annual target of 2% from next year through 2024.
The OECD's outlook for the 19 European countries that share the euro currency facing an energy crisis caused by the Russian war is not at all positive. The organization expects eurozone-wide growth to be just 0.5% next year, accelerating slightly to 1.4% in 2024.
And it expects inflation to continue weighing down the continent. The OECD predicts that consumer prices, which rose just 2.6% in 2021, will rise by 8.3% in 2022 and 6.8% in 2023.
Asia, a ray of hope
The OECD believes that whatever growth the international economy generates next year, it will largely come from Asia's emerging market economies, which together will grow next year as the US and European economies slump. is estimated to account for three-quarters of global growth. For example, India's economy is expected to grow by 6.6% this year and 5.7% next year.
China's economy, which boasted double-digit annual growth not long ago, will grow by just 3.3% this year and 4.6% by 2023. The world's second-largest economy is hampered by a weak real estate market, high debt and harsh zero interest rates. Coronavirus policies disrupted commerce.
The global economy has surged out of the pandemic recession in early 2020, driven by massive government spending and record-low borrowing rates. The recovery was so strong that factories, ports, and freight yards were overwhelmed, causing shortages and soaring prices. Russia's invasion of Ukraine in February disrupted energy and food trade, further increasing prices.
After decades of low prices and ultra-low interest rates, the impact of chronically high inflation and interest rates is unpredictable.
“Financial strategies undertaken during a prolonged period of ultra-low interest rates could be exposed by rapid interest rate increases and be stressed in unexpected ways,” the OECD said in a report on Tuesday. Ta.
Higher interest rates engineered by the Fed and other central banks will make it harder for heavily indebted governments, businesses and consumers to pay their bills. In particular, a stronger U.S. dollar, which is contributing to higher U.S. interest rates, could jeopardize foreign companies that borrowed in U.S. currency, leaving them without the means to repay their now more expensive debts.
