According to the Organisation for Economic Co-operation and Development (OECD), the world economy should avoid going into recession next year, but the worst energy crisis since the 1970s will cause a sharp slowdown, with Europe being the hardest hit.
The group urged central banks to keep raising interest rates as a defence against this.
Global economic growth is expected to slow from 3.1% this year to 2.2% next year before picking up to 2.7% in 2024, the OECD said, marginally raising its 2022 forecast.
“Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries,” acting OECD chief economist Alvaro Santos Pereira said in the organisation’s latest Economic Outlook.
The OECD said the global slowdown was hitting economies unevenly, with Europe bearing the brunt as Russia’s war in Ukraine both hits business activity and drives an energy price spike.
It forecast the Euro zone economy would slow from 3.3 per cent growth this year to 0.5 per cent in 2023 before recovering to expand by 1.4 per cent in 2024. That was slightly better than in the OECD’s last outlook in September, when 3.1 per cent growth was estimated for this year and 0.3 per cent in 2023. It predicted a contraction of 0.3 per cent next year in regional heavyweight Germany, whose industry-driven economy is highly dependent on Russian energy exports – less dire than the 0.7 per cent slump expected in September.
Even in Europe outlooks diverged, with the French economy, which is far less dependent on Russian energy, expected to grow 0.6 per cent next year. Italy was seen eking out 0.2 per cent growth, which means several quarterly contractions are probable.
Outside the Euro zone, the UK economy was seen shrinking 0.4 per cent next year as it contends with rising interest rates, surging prices and weak confidence. Previously, the OECD had expected 0.2 per cent growth.
The US economy was set to hold up better, with growth expected to slow from 1.8 per cent this year to 0.5 per cent in 2023 before rising to 1.0 per cent in 2024. The OECD had previously expected growth of only 1.5 per cent this year in the world’s biggest economy and its estimate for 2023 was unchanged.
China, which is not an OECD member, was one of the few major economies expected to see growth pick up next year after a wave of Covid-19 lockdowns. Growth there was seen rising from 3.3 per cent this year to 4.6 per cent in 2023 and 4.1 per cent in 2024, compared with previous forecasts for 2022 of 3.2 per cent and 4.7 per cent for 2023.
The OECD told that central banks should keep raising interest rates to combat inflation because energy prices are likely to remain high, despite early increases in Brazil and the US showing promise.
While many governments had already spent heavily to ease the pain of high inflation with energy price caps, tax cuts and subsidies, the OECD said the high cost meant such support would have to be better targeted going forward. –Reuters