(Bloomberg) – The world as a whole has been rocked by the war in Ukraine, according to the OECD, which cut almost all growth forecasts for the Group of 20 next year while expecting more rate hikes.
The global economy will grow just 2.2% in 2023, the Paris-based organization said on Monday. It lowered GDP forecasts for most of the G-20, with only Indonesia posting a slightly higher forecast. Many in the group are also facing noticeably faster inflation.
“The global economy is ailing,” according to interim forecasts by the OECD. “The world, and Europe in particular, is bearing the cost of the war in Ukraine, and a difficult winter is ahead for many economies.”
The outlook offers a snapshot of the synchronized shock stemming from Russia’s attack on Ukraine and the ensuing energy crisis that has caused a widespread cost of living crisis.
Global central banks hiked interest rates by a total of more than 2,000 basis points this month to combat rising consumer prices. That’s not enough, according to OECD officials.
“Inflation has been broad-based in many economies,” the report says. “Further rate hikes are needed in most major economies to anchor inflation expectations and ensure that inflationary pressures are permanently reduced.”
The slump in growth in Europe is particularly visible. The OECD now expects Germany, the region’s largest economy, to shrink by 0.7% next year.
“In Europe, many economies are likely to experience weak growth at best in the second half of 2022 and the first quarter of 2023, before some improvement by the end of 2023,” the report said.
Officials are forecasting “short-term output declines” in Germany, Italy, the UK and “the broader eurozone amid the strain of falling real incomes and disruptions in energy markets.”
The OECD stressed the “significant uncertainty” surrounding its forecasts, which assume no further Covid waves, no escalation or widening of the war in Ukraine and an easing of pressure on the energy markets.
“EU gas storage capacities have increased significantly over the course of this year and now average between 80 and 90 percent in most member states,” the OECD said. “Even at this level, there may not be enough storage to ensure demand can be met during a typical winter without forcing storage capacity in the European gas market below effective operating levels.”
Greater fuel shortages, particularly for gas, could shave another 1.25 percentage points off growth in Europe in 2023 and increase inflation by over 1.5 percentage points, the OECD said, pushing “many countries into a year-round recession in 2023” and Europe that Growth “would also weaken in 2024”.
The report also showed:
- In China, growth will slow to 3.2% this year amid repeated Covid-19 shutdowns and a housing market crisis, “but policy support could help growth recover in 2023,” the said OECD
- The US economy will only grow by 0.5% next year
- Fiscal support is needed to “mitigate the impact of high energy costs on households and businesses”, but it must be “temporary, focused on the most vulnerable, given incentives to reduce energy use and withdrawn when energy price pressures ease”.
- Food security remains threatened because of the war, and international cooperation is needed to “keep agricultural markets open, meet emergencies and strengthen supplies”.
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