Energy, inflation crises risk pushing big economies into recession – OECD

Visitors walk past Japan’s Nikkei stock price quotation board at a conference hall in Tokyo, Japan September 14, 2022. REUTERS/Issei Kato

PARIS, Sept 26 (Reuters) – Global economic growth is slowing more than forecast a few months ago in the wake of Russia’s invasion of Ukraine as energy and inflation crises risk spreading into recessions in key economies, the OECD said on Monday .

While global growth was expected to be 3.0% this year, it is now expected to slow to 2.2% in 2023, which has been revised down from a June forecast of 2.8%, the organization said economical co-operation and Development.

The Paris-based policy forum was particularly pessimistic about the outlook for Europe — the economy most directly exposed to the fallout from Russia’s war in Ukraine.

Global production next year is now expected to be $2.8 trillion below what the OECD had forecast before Russia’s attack on Ukraine – a global loss in income that matches that of the French economy.

“The world economy has lost momentum after Russia’s unprovoked, unjustified and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an ongoing slowdown,” OECD Secretary-General Mathias Cormann said in a statement.

Economic growth in the eurozone, projected by the OECD, would slow to just 0.3% in 2023 from 3.1% this year, meaning the 19-nation currency bloc would spend at least part of the year in recession , which is defined as two consecutive quarters of contraction.

This marked a dramatic downgrade from the OECD’s latest economic outlook in June, when it had forecast the euro-zone economy to grow 1.6% next year.

The OECD has been particularly gloomy about the Russian gas-dependent German economy, forecasting it would contract by 0.7% next year, down from a June estimate of 1.7% growth.

The OECD warned that further disruptions to energy supplies would hamper growth and boost inflation, particularly in Europe, where they could pull back activity by another 1.25 percentage points and boost inflation by 1.5 percentage points, which many countries are predicting into recession for the whole of 2023.

Although the United States is far less dependent on imported energy than Europe, the United States was seen sliding into a downturn as the US Federal Reserve hiked interest rates to curb inflation.

The OECD forecasts the world’s largest economy will slow to just 0.5% next year from 1.5% growth this year, compared with June forecasts of 2.5% in 2022 and 1.2 % in 2023.

Meanwhile, China’s tough measures to contain the spread of COVID-19 this year meant its economy should grow just 3.2% this year and 4.7% next year, compared to the OECD’s 4.4% in the previous year 2022 and 4.9% in 2023.

Despite the rapidly deteriorating outlook for major economies, the OECD said further interest rate hikes were needed to fight inflation and forecast most major central banks would hold interest rates above 4% next year.

As many governments increase support packages to help households and businesses deal with high inflation, the OECD said such measures should target those most in need and be temporary to keep their costs down and the high post-COVID debt no further burden.

Reporting by Leigh Thomas; Adaptation by Richard Lough

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