Rising inflation and slowing growth are the heavy toll the global economy is paying for Russia’s war in Ukraine, the Organization for Economic Co-operation and Development said on Tuesday.
Record inflation, fueled by the biggest energy crisis since the 1970s, is creating financial hardship for millions, the Paris-based organization said in a new report. Governments and policymakers must make reducing inflation their top priority, while protecting households and businesses with targeted spending, the OECD added.
“Moving the economy from the current situation to a sustainable recovery will be difficult,” said Mathias Cormann, Secretary General of the OECD, at a press conference. “Risks remain tilted to the downside and economic activity could prove even weaker if energy prices rise further or energy disruptions affect gas and power markets in Europe and Asia.” , did he declare.
“An end to the war and a just peace for Ukraine would be the most effective way to influence the economic outlook,” Cormann added. “But until that happens, governments should deploy measures for a stronger and sustainable recovery.”
The global economy will not fall into an outright recession. But global growth will drop to 2.2% in 2023 from 3.1% this year, before rebounding to 2.7% in 2024, the report forecast. Inflation in most developed and developing economies around the world will decline slightly, to 6.4% next year, from a blistering 9.4% in 2022, but will continue to wreak economic damage.
The whirlwind of problems – high energy and food costs, rising interest rates and growing public debt to pay for the fallout – will weigh most heavily on Europe, North America and South America next year, with those regions facing painful economic downturns and stubbornly high prices, according to the OECD.
The economies of the United States and Europe are expected to grow at an anemic pace of just 0.5% next year.
China’s economy is expected to grow 4.6% in 2023, after a pandemic-induced slowdown this year that cut its growth rate by more than half.
Efforts by central banks to contain runaway inflation are beginning to bear fruit in some countries, the group said. In Brazil, where the central bank acted quickly with a series of rate hikes, inflation has started to decline in recent months. In the United States, where the Federal Reserve unleashed its biggest rate hikes in decades, the latest data suggests progress is being made in tackling inflation.
Even so, monetary policy should continue to tighten in countries where inflation remains high and widespread, the OECD said.
Europe, which is grappling with a war on its border, will likely find it harder to get inflation under control, mainly because governments are moving so far away from relatively cheap Russian gas and oil, which is likely to take several years to come to fruition.
Politicians have spent lavishly to protect households and businesses from the scourge of high energy and food prices, including price caps, price and income subsidies, and tax cuts. Overall, countries now spend almost a fifth of their economic output on energy, up from around a tenth in recent years.
But some of these policies risk adding to inflationary pressures, encouraging more spending and less incentive to save on energy, the OECD said. “Given that energy prices are likely to remain high and volatile for some time, untargeted measures to keep prices low will become increasingly unaffordable and could discourage needed energy savings,” he said. he declares.