Hampered by high interest rates, punitive inflation and Russia’s war against Ukrainethe global economy is expected to grow only modestly this year and to grow even more slowly in 2023.

That was Tuesday’s sobering forecast by the Paris-based Organization for Economic Co-operation and Development. The OECD estimates that the global economy will grow by just 3.1 percent this year, a sharp drop from a robust 5.9 percent in 2021.

Next year, the OECD predicts, would be even worse: the international economy would only grow by 2.2 percent.

“It is true that we are not forecasting a global recession,” OECD Secretary-General Mathias Cormann said at a news conference. “But this is a very, very challenging prospect, and I don’t think anyone will take much comfort in the forecast of 2.2 percent global growth.”

Consisting of 38 member countries, the OECD is committed to international trade and prosperity and issues periodic reports and analyses. Figures from the Biological Action showed that as much as 18 percent of economic output in member states was spent on energy after the Russian invasion of Ukraine drove up prices for oil and natural gas. That has left the world facing an energy crisis on the scale of the two historic peaks in energy prices in the 1970s, which also slowed growth and pushed up inflation.

Inflation — largely exacerbated by high energy prices — “is broad-based and persistent,” Cormann said, while “real household incomes have weakened in many countries despite support measures taken by many governments.”

Global delay

In its latest forecast, the OECD predicts that the US Federal Reserve aggressive push to contain inflation with higher interest rates – it has raised its benchmark rate six times this year, in substantial steps – will bring the US economy to a near halt. It expects the United States, the world’s largest economy, to grow just 1.8 percent this year — a drastic drop from 5.9 percent in 2021, 0.5 percent in 2023 and 1 percent in 2024.

An employee of the German food discounter ALDI Nord in Essen, Germany
The war in Ukraine has driven inflation to historic levels [File: Wolfgang Rattay//Reuters]

That grim view is widely shared. Most economists expect the US to experience at least a mild recession next year, although the OECD did not specifically predict one.

The report expects US inflation, while declining, to remain well above the Fed’s annual target of 2 percent next year and into 2024.

The OECD’s forecast for the 19 European countries that share the euro are sustainable an energy crisis caused by the war in Russia, is hardly brighter. The organization expects the eurozone to achieve collective growth of just 0.5 percent next year, before accelerating slightly to 1.4 percent in 2024.

And it expects inflation to continue to weigh on the continent: The OECD forecasts that consumer prices, which rose just 2.6 percent in 2021, will rise by 8.3 percent in all of 2022 and 6.8 percent in 2023.

Asia, a silver lining

Whatever growth the international economy produces next year, the OECD said, will largely come from emerging market countries in Asia: together they are estimated to account for three-quarters of global growth next year, while the US and European economies falter. The Indian economy is expected to grow by 6.6 percent this year and 5.7 percent next year.

China’s economy, which not so long ago showed double-digit annual growth, will grow only 3.3 percent this year and 4.6 percent in 2023. weakness in the real estate marketshigh debts and draconian zero-COVID policy that disrupted trade.

Powered by massive government spending and record-low borrowing rates, the global economy rocketed out of the pandemic recession of the early 2020s. 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 strategies put in place during the extended period of extremely low interest rates can be exposed to rapidly rising interest rates and create stress in unexpected ways,” the OECD said in Tuesday’s report.

The higher interest rates being developed by the Fed and other central banks will make it difficult for heavily indebted governments, businesses and consumers to pay their bills. Mainly, a stronger US dollarresulting in part from higher US rates, will jeopardize foreign companies that have borrowed in US currency and may not have the resources to repay their now more expensive debt.



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