Global GDP is projected to grow by 3.1% this year, and by just 2.2% in 2023, according to the latest forecast from the Organization for Economic Cooperation and Development (OECD).
Although the OECD is not predicting a recession, its forecast is more pessimistic than that of the International Monetary Fund (IMF), which said last month that it expects the world economy to grow by 3.2% this year and 2.7% next year.
The “fragile prospects” for the global economy are a direct result of Russia’s war against Ukraine, which has sparked an energy crisis that has spurred inflation worldwide, the OECD said in a statement on Tuesday.
“Persistent inflation, high energy prices, weak real household income growth, falling confidence and tighter financial conditions are all expected to curtail growth,” it added. If energy prices rise further or energy supply is disrupted, growth could be even weaker than expected.
Growth next year is “strongly dependent” on major Asian economies, which will account for close to three quarters of the expansion in global GDP, with the United States and Europe “decelerating sharply,” the OECD said.
India is projected to have the world’s second highest growth rates, after Saudi Arabia, at 6.6% in 2022, followed by 5.7% in 2023. China’s economy is predicted to grow by 3.3% this year, followed by 4.6% in 2023.
By contrast, the United States is expected to grow by just 1.8% in 2022 and 0.5% in 2023. Growth across the 19 EU countries that use the euro is also expected to decline steeply over the next two years, from 3.3% in 2022, to 0.5% in 2023.
That the European and American economies are growing at all is partly because of government spending on energy subsidies and policies to boost investment such as NextGeneration EU and the Inflation Reduction Act, OECD Secretary General Matthias Cormann told reporters on Tuesday.
Savings accumulated by households and businesses during the initial phase of the pandemic will also help to support spending, he added.
“An end to the war and a just peace for Ukraine would be the most impactful way to improve the global economic outlook right now,” Cormann said.
The OECD expects inflation to remain above 9% this year among advanced economies. It’s then forecast to fall back to 6.6% in 2023, slightly above levels forecast by the IMF.
Major central banks aim for inflation near 2%, and have been hiking interest rates in a bid to limit price rises. But the campaign is also boosting risks to the economy by increasing debt servicing costs for households, businesses and governments.
“Higher interest rates, while necessary to moderate inflation, will increase financial challenges for both households and corporate borrowers,” the OECD said.
“Low-income countries will remain particularly vulnerable to high food and energy prices, while tighter global financial conditions may raise the risk of further debt distress,” it added.
World Bank President David Malpass told CNN recently that the organization is “worrying about a world recession in 2023,” but that the United States is “a little stronger than other economies.”