Leading economies slide into recession as war in Ukraine dampens growth, OECD finds | Company

According to the Organization for Economic Co-operation and Development (OECD), the world’s leading economies are sliding into recession as the global energy and inflation crises sparked by Russia’s invasion of Ukraine have reduced growth by more than previously forecast.

A reliance on expensive gas for heavy industry and residential heating will plunge Germany, Italy and the UK into a long recession after the OECD predicted global growth would slow to 2.2% by 2023, compared to a forecast in June from 2.8%.

With the global economy having to grow by about 4% to keep up with rising populations, the OECD said per capita incomes would be lower in many countries.

The OECD’s interim chief economist, Álvaro Pereira, said the world is paying a heavy price for the war in Ukraine and Russia’s decision to restrict access to gas supplies more severely than forecast in June.

He said governments should encourage households and businesses to reduce their gas and oil consumption to get through a difficult winter.

Pereira also supported central banks’ determination to curb inflation by raising interest rates. “We need to reduce demand, there’s no doubt about that. And monetary and fiscal authorities must work hand in hand to achieve this,” he said.

China’s growth rate is expected to fall to 3.2% this year – the lowest level since the 1970s – causing a sharp decline in trade with neighboring South Korea, Vietnam and Japan, reducing their growth capacity.

A recovery in China to 4.7% next year will be weaker than expected, the OECD said, as Beijing struggles with a real estate market and a banking sector burdened by massive debt.

However, the Paris-based policy forum was most alarmed by the prospects across Europe, which is most directly exposed to the fallout from Russia’s war in Ukraine.

The OECD predicted that UK GDP growth would be flat in 2023. However, this projection does not take into account the measures announced Friday in Chancellor Kwasi Kwarteng’s mini-budget.

The OECD forecast a decline in eurozone growth 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 escape recession if it grows by 0.8% next year, as forecast by the OECD, but will, along with other European countries, suffer from the slowdown in GDP growth of 1.3 percentage points since June.

Russia will shrink by at least 5.5% this year and 4.5% in 2023. Berlin’s reliance on Russian gas before the invasion means the German economy will contract by 0.7% next year, compared with growth estimated in June of 1.7%.

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The OECD warned that further energy supply disruptions would affect growth and boost inflation, especially in Europe, where they could cut activity by a further 1.25 percentage points and increase inflation by 1.5 percentage points, causing many countries would fall into recession for the full year of 2023.

Global output next year is expected to be $2.8 trillion (£2.6 trillion) lower than the OECD forecast before Russia attacked Ukraine – a loss in world income equal to the UK economy.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustified and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to a protracted slowdown,” said the organization’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 was less dependent than other countries on energy from Russia or other sources, signaling a strong recovery in the US economy. 2024 made possible .

The OECD predicted that the world’s largest economy would slow from 1.5% growth this year to just 0.5% next year, down from June forecasts of 2.5% in 2022 and 1.2% in 2023.

World Bank officials have called on central banks to refrain from competitive interest rate hikes that will push the global economy into recession and hurt the economies of developing countries the most.

Nevertheless, the OECD said further rate hikes were needed to fight inflation, and predicted that key rates of most major central banks would reach at least 4% next year.

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