EEconomies around the world are slowing more than expected as Russia’s war in Ukraine pushes up inflation and energy costs, forcing the Organization for Economic Co-operation and Development to scale back its growth forecasts for the coming years on Monday.
Though hesitant to forecast a global recession, the organization lowered its outlook, maintaining its expectation that global economic growth would be a “modest” 3% this year and an even weaker 2.2% next year, compared to 2 .8% a few months ago.
“The world is paying a very high price for Russia’s war of aggression against Ukraine,” said Mathias Cormann, the organization’s secretary general.
The organization lowered its growth forecast in virtually all 38 countries it represents, including most of the world’s advanced economies. It forecast growth of just 3.2% for China this year and 4.7% next year, one of the lowest rates for the country since the 1970s, said Álvaro Santos Pereira, the OECD’s chief economist.
Comparing the current forecast to one released late last year revealed a gap of about $2.8 trillion in lost production for 2023, a number roughly the size of France’s economy. That was the organization’s rough estimate of the economic toll the war is taking on the world economy.
“The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional pressure on global inflation,” the report said.
Europe remains the most vulnerable region as several countries risk recession. Germany, the European Union’s largest economy, is expected to shrink by 0.7% next year after growing just 1.2% this year. Growth of less than 1% is forecast for both France and Italy next year.
In the United States, forecast growth has been scaled back to 1.5% this year from 2.5% in June and 0.5% in 2023 from 1.2% in the June report.
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Rising inflation, fueled by high energy and food prices, is driving the slowdown and spreading to other goods and services, weighing heavily on households and businesses. High energy costs and looming gas shortages in Europe remain key risks as countries head into winter with almost full storage tanks but with uncertainty about how long they will last.
“The risks are very much on the downside,” Cormann warned.
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