The global economy is paying a high price for Russia’s war of aggression in Ukraine with growth slowing and prices surging more than expected, the Organisation for Economic Co-operation and Development (OECD) has said.
In its latest interim economic outlook the Paris-based agency warned of a “pervasive global economic slowdown” that was likely to tip many countries into recession. It said the war had further pushed up energy prices, especially in Europe, aggravating inflationary pressures at a time when the cost of living was already rising rapidly “due to lingering impacts of the Covid-19 pandemic”.
“With businesses across many economies passing through higher energy, transportation and labour costs, inflation is reaching levels not seen since the 1980s, forcing central banks to rapidly tighten monetary policy settings faster than anticipated,” it said.
This has led to a contraction in the growth outlook. While growth across the global economy is still expected to be 3 per cent this year, it is projected to slow to 2.2 per cent in 2023, down from a forecast of 2.8 per cent as recently as June, the OECD said.
Global output next year is now projected to be $2.8 trillion lower (€2.91 trillion) than what the OECD forecast before Russia attacked Ukraine. “There are many costs to Russia’s war, but this gives some sense of the worldwide price of the war in terms of economic output,” it said.
Annual growth in gross domestic product (GDP) terms is projected to slow sharply to 0.25 per cent in the euro area next year, with risks of output declines or recessions in several European economies during the winter months. This marked a big downgrade from the OECD’s last economic outlook in June, when it had forecast the euro zone’s economy would grow 1.6 per cent next year.
It also warned that significant uncertainty surrounds the projections, noting that more severe fuel shortages, especially for gas, could reduce growth in Europe by a further 1.25 percentage points in 2023.
Growth in the world’s largest economy, the US, is expected to slow to 0.5 per cent next year, while China it is projected to drop to 3.2 per cent this year, amid Covid-19 shutdowns and property market weakness, but policy support could help growth recover in 2023.
Headline inflation across in G20 economies is projected to ease from 8.2 per cent in 2022 to 6.5 per cent in 2023.
“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD secretary-general Mathias Cormann said during a presentation of the outlook.
“Inflationary pressures that were already present as the global economy emerged from the pandemic have been severely aggravated by the war. This has further driven rising energy and food prices that now threaten living standards for people across the globe,” he said.