The world’s leading economies are slipping into recession as the global energy and inflation crisis triggered by Russia’s invasion of Ukraine has stunted growth more than previously forecast, according to the Organization for Economic Co-operation and Development (OECD).
A reliance on expensive gas for heavy industry and home heating will plunge Germany, Italy and the UK into a long recession after the OECD forecast global growth to slow to 2.8% in June from a forecast of 2.8% in June .2% in 2023.
As the global economy needs to grow by about 4% to keep up with the growing population, the OECD said per capita income would be lower in many countries.
OECD interim chief economist Álvaro Pereira said the world is paying a heavy price for the war in Ukraine and Russia’s decision to tighten access to gas supplies more severely than forecast in June.
He said governments must encourage households and businesses to reduce their consumption of gas and oil to weather a difficult winter.
Pereira also supported central banks’ determination to reduce inflation by raising interest rates. “We have to reduce demand, there is no doubt about that. And monetary and tax authorities need to work hand in hand to achieve that,” he said.
China’s growth rate is expected to fall to 3.2% this year – the lowest level since the 1970s – leading to a sharp drop in trade with neighbors South Korea, Vietnam and Japan, hurting their growth capacity.
A recovery in China next year to 4.7% will be weaker than expected, the OECD said, as Beijing grapples with a housing market and a banking sector weighed down by huge debt.
But the Paris-based policy forum was most concerned about the outlook across Europe, which is most directly exposed to the fallout from Russia’s war in Ukraine.
The OECD forecasts UK GDP growth to stagnate in 2023. However, this forecast does not take into account the measures announced in Chancellor Kwasi Kwarteng’s mini-budget on Friday.
The OECD is forecasting eurozone growth to fall 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 avoid recession if it grows by 0.8% next year as forecast by the OECD, but will suffer along with other European countries from the 1.3 percentage point slowdown in GDP growth since June.
Russia will shrink by at least 5.5% this year and 4.5% in 2023. Berlin’s reliance on Russian gas ahead of the invasion means the German economy will contract by 0.7% next year, compared with growth of 1.7% in June.
The OECD warned that further disruptions to energy supplies would hamper growth and boost inflation, particularly in Europe, where they could shave a further 1.25 percentage points off activity and increase inflation by 1.5 percentage points, which many countries are predicting into recession for the whole of 2023.
Global production next year is expected to be $2.8 trillion (£2.6 trillion) below the OECD forecast before Russia attacked Ukraine – a global loss in income matching that of the UK economy.
“The world economy lost momentum after Russia’s unprovoked, unjustified and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators are pointing to an ongoing slowdown,” said the organisation’s secretary-general, Mathias Cormann.
A review of the US outlook found that while it is likely to grow slowly this year and be in recession for part of 2023, it has been less dependent than other countries on energy from Russia or other sources, a strong one Recovery enabled in 2024.
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.
World Bank officials have urged central banks to refrain from aggressive rate hikes, which would push the global economy into recession and hurt developing world economies the most.
Still, the OECD said more rate hikes were needed to fight inflation and forecast most major central banks’ interest rates would hit at least 4% next year.
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