World economy to grow 3.1% this year, down from 5.9% : OECD

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While not predicting a global recession, the OECD said it was a “very, very difficult outlook” for this year and next.

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The global economy, held back by high interest rates, inflation and Russia’s war against Ukraine, is expected to show only modest growth this year and even more modest growth in 2023.

Such a sobering forecast was released on Tuesday by the Paris-based Organization for Economic Cooperation and Development. The OECD estimates that the global economy will grow by just 3.1% this year, compared to a robust 5.9% in 2021.

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Next year, according to OECD forecasts, will be even worse: the international economy will grow by only 2.2 percent.

“It is true that we are not predicting a global recession,” OECD Secretary General Matthias Kormann told a press conference. “But it’s a very, very difficult outlook, and I don’t think anyone will be very comforted by the 2.2 percent global growth forecast.”

The OECD, which consists of 38 member countries, works to promote international trade and prosperity and issues periodic reports and analyses. The organic stock figures showed that 18 percent of member countries’ economic production was spent on energy after Russia’s invasion of Ukraine boosted oil and natural gas prices. This led the world into an energy crisis on the scale of two historic energy price spikes in the 1970s, which also slowed growth and fueled inflation.

Inflation, exacerbated in large part by high energy prices, “has become widespread and persistent,” Kormann said, while “real household incomes have declined in many countries despite the support measures that many governments are implementing.”

global slowdown

In its latest forecast, the OECD predicts that the US Federal Reserve’s aggressive drive to tame inflation with higher interest rates – it has raised the base rate six times this year with significant increases – will bring the US economy to a near standstill. The United States, the world’s largest economy, is expected to grow just 1.8 percent this year — sharply up from 5.9 percent in 2021, 0.5 percent in 2023 and 1 percent in 2024.

The war in Ukraine brought inflation to historic levels [File: Wolfgang Rattay//Reuters]

This bleak outlook is widespread. Most economists expect the US to enter at least a mild recession next year, though the OECD has not specifically predicted one.

The report predicts that US inflation, although slowing, will remain well above the Fed’s annual target of 2% next year and into 2024.

The OECD’s outlook for the 19 European countries that use the common euro currency and are experiencing an energy crisis due to the war with Russia is hardly rosier. The organization expects the eurozone to collectively handle growth of just 0.5% next year before accelerating slightly to 1.4% in 2024.

And inflation is expected to continue to squeeze the continent: The OECD predicts that consumer prices, which rose just 2.6% in 2021, will rise 8.3% for all of 2022 and 6.8% in 2023.

Asia, silver lining

Whatever growth the international economy generates next year, the OECD said will mostly come from emerging Asia: together, they are estimated to account for three-quarters of global growth next year, while the U.S. and Europe will falter. For example, India’s economy is expected to grow by 6.6% this year and 5.7% next.

China’s economy, which not so long ago posted double-digit annual growth, will grow by just 3.3 percent this year and 4.6 percent in 2023. The COVID policy that disrupted trade.

Thanks to huge government spending and record low borrowing rates, the global economy rapidly emerged from the pandemic recession in early 2020. The recovery was so strong that it overwhelmed factories, ports and freight yards, leading to shortages and rising prices. Moscow’s invasion of Ukraine in February disrupted energy and food trade and pushed prices up further.

After decades of low prices and ultra-low interest rates, the consequences of chronically high inflation and interest rates are unpredictable.

“Financial strategies implemented during an extended period of ultra-low interest rates can be affected by rapidly rising rates and cause stress in unexpected ways,” the OECD said in a report on Tuesday.

Higher interest rates designed 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, fueled in part by higher US interest rates, will put at risk foreign companies that have borrowed in US currency and may not have the funds to pay off their now more expensive debt.

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