Major economies slide into recession as war in Ukraine stifles growth, says OECD | Company
According to the Organization for Economic Co-operation and Development (OECD), the world’s major economies are sliding into recession as the global energy and inflation crises triggered by Russia’s invasion of Ukraine reduce the growth more than expected.
A reliance on expensive gas for heavy industry and home heating will send Germany, Italy and the UK into a long recession after the OECD predicted global growth would slow to 2.2% in 2023, compared to a forecast of 2.8% in June.
With the global economy expected to grow by around 4% to keep pace with population growth, the OECD said per capita incomes would be lower in many countries.
OECD acting chief economist Álvaro Pereira says the world is paying a high price for the war in Ukraine and Russia’s decision to restrict access to gas supplies more tightly than expected in June .
He said governments should encourage households and businesses to reduce gas and oil consumption to help them weather a tough winter.
Pereira also backed central banks’ determination to reduce inflation by raising interest rates. “We have to reduce demand, there is no doubt about that. And monetary and fiscal authorities must work hand in hand to achieve this,” he said.
China’s growth rate is expected to fall this year to 3.2% – its lowest since the 1970s – leading to a sharp drop in trade with neighbors South Korea, Vietnam and Japan, reducing their ability to grow .
A recovery in China next year to 4.7% will be weaker than expected, the OECD said, as Beijing struggles with a housing market and banking sector weighed down by huge debts.
However, the Paris-based policy forum was most alarmed at the outlook across Europe, which is most directly exposed to fallout from Russia’s war in Ukraine.
The OECD forecasts UK GDP growth to be stable in 2023. However, this projection does not take into account measures announced in Chancellor Kwasi Kwarteng’s mini-budget on Friday.
The OECD expects growth in the eurozone to decline 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 recession is defined as two consecutive quarters of contraction.
France could escape a recession if it grows by 0.8% next year as forecast by the OECD, but will suffer along with other European countries after the deterioration in GDP growth since June of 1.3 points percentage.
Russia will contract by at least 5.5% this year and 4.5% in 2023. Berlin’s dependence on Russian gas before the invasion means that the German economy will contract by 0.7% in the year next year, against a June estimate of 1.7% growth.
The OECD has warned that further disruptions in energy supply will affect growth and boost inflation, particularly in Europe, where they could lower activity by 1.25 percentage points and increase inflation by 1. .5 percentage points, pushing many countries into recession for the whole of 2023.
Global output next year is expected to be $2.8bn (£2.6bn) lower than OECD forecast before Russia attacks Ukraine – a loss in global income equivalent to the British economy.
“The global economy has lost momentum as a result of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to a prolonged slowdown,” said the organisation’s secretary general, Mathias Cormann.
A review of the outlook for the United States found that while it is likely to grow slowly this year and be in recession for part of 2023, it was less dependent than other countries on energy from the Russia or other sources, allowing for a strong recovery in 2024. .
The OECD predicts the world’s largest economy will slow from 1.5% growth this year to just 0.5% next year, down from June forecasts of 2.5% in 2022 and 1 .2% in 2023.
World Bank officials have called on central banks to refrain from competitive rate hikes that will push the global economy into recession and hurt the economies of developing countries the most.
Still, the OECD said further rate hikes were needed to fight inflation, predicting that key rates at most major central banks would hit at least 4% next year.