PAUL WISEMAN and DAVID McHUGH Associated Press
Hampered by high interest rates, punishing inflation and Russia’s war on Ukraine, the global economy is expected to post modest growth this year and expand even more slowly in 2023.
That was the sobering forecast released this week by the Paris-based Organization for Economic Co-operation and Development. According to estimates by the OECD, the global economy will grow by just 3.1% this year, a significant decline from a robust 5.9% in 2021.
The OECD predicts that next year will be even worse: the world economy will only grow by 2.2%.
“It is true that we are not predicting a global recession,” said OECD Secretary General Mathias Cormann at a press conference. “But this is a very, very challenging outlook and I don’t think anyone will take much comfort from the forecast for global growth of 2.2%.”
The OECD, made up of 38 member countries, works to promote international trade and prosperity and regularly publishes reports and analyses. Figures from the organization showed that a full 18% of member countries’ economic output was spent on energy, after Russia’s invasion of Ukraine helped push up oil and natural gas prices. This has left the world with an energy crisis on the scale of the two historic energy price spikes in the 1970s, which also slowed growth and fueled inflation.
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Inflation – fueled largely by high energy prices – “has become broad-based and persistent,” Cormann said, while “real household incomes in many countries have weakened despite support measures that many governments have introduced.”
In its latest forecast, the OECD predicts that the US Federal Reserve’s aggressive attempt to tame inflation with higher interest rates – which has raised its benchmark interest rate six times this year in sizeable steps – will bring the US economy to a near halt. The United States, the world’s largest economy, is expected to grow just 1.8% this year (a sharp drop from 5.9% in 2021), 0.5% in 2023 and 1% in 2024.
This bleak prospect is widely shared. Most economists expect the United States to enter at least a mild recession next year, although the OECD has not specifically predicted this.
The report expects US inflation, while slowing, to remain well above the Fed’s annual target of 2% next year and into 2024.
The OECD forecast for the 19 European countries that share the euro currency and are mired in an energy crisis from the Russian war is little better. The organization expects the eurozone as a whole to post just 0.5% growth next year before accelerating slightly to 1.4% in 2024.
And she expects inflation to continue to pressure the continent: the OECD forecasts that consumer prices, which rose just 2.6% in 2021, will rise by 8.3% in 2022 as a whole and by 6.8% in 2023 % will increase.
Whatever growth the international economy generates next year, the OECD says, will come largely from emerging Asia: together they are estimated to account for three-quarters of global growth next year, while the US and European economies stalled. For example, India’s economy is expected to grow 6.6% this year and 5.7% next year.
China’s economy, which not so long ago boasted double-digit annual growth, will grow by just 3.3% this year and 4.6% in 2023. COVID policies that have disrupted commerce.
The global economy emerged from the pandemic recession in early 2020, fueled by massive government spending and record-low lending rates. The recovery was so strong that it overwhelmed factories, ports and freight yards, causing shortages and higher prices. Moscow’s invasion of Ukraine in February disrupted energy and food trade and further accelerated prices.
After decades of low prices and ultra-low interest rates, the consequences of chronically high inflation and interest rates are unpredictable.
“Financial policies adopted during the prolonged period of extremely low interest rates may be exposed to rapidly rising interest rates and stress in unexpected ways,” the OECD said in its Tuesday report.
Higher interest rates planned by the Fed and other central banks will make it harder for heavily indebted governments, businesses and consumers to pay their bills. In particular, a stronger US dollar, resulting in part from higher US interest rates, will jeopardize foreign companies that have borrowed in US currency and may not have the funds to repay their now more expensive debt.