Global Economy Seen Slowing Further in 2023 Amid 'Serious Headwinds' From Russia-Ukraine War, OECD Says

Global economic growth is expected to slow further in 2023 as Russia’s war against Ukraine continues to create “serious headwinds,” including elevated energy prices, thereby increasing risks, the Organisation for Economic Cooperation and Development, or OECD, said Tuesday.

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The OECD sees global growth “well below the outcomes expected before the war,” according to its latest economic outlook. Real gross domestic product is projected to grow 3.1% for 2022, before decelerating to 2.2% in 2023 and recovering to 2.7% in 2024.

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“Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries,” OECD interim Chief Economist Alvaro Santos Pereira said in a statement. “Risks remain significant,” especially for energy markets, according to Pereira.

In the US, real GDP is expected to increase by 1.8% this year, 0.5% in 2023 and 1% in 2024, though risks are “tilted to the downside,” the OECD said. The organization projects elevated inflation and tighter financial conditions to “further crimp” spending plans, while domestic production is expected to slow notably.

The US unemployment rate is seen rising to 4.7% in 2024, while core inflation is not expected to return close to the Federal Reserve’s 2% target until late 2024, according to the OECD. It forecasts the federal funds rate to rise to a peak of 5% to 5.25% in early 2023. The Federal Open Market Committee recently pushed the rate up to a range of 3.75% to 4%.

Europe, North America and South America will likely see “very low” economic growth in 2023 and 2024, while Asia is expected to be the “main engine” of growth over the period, Pereira said. Elevated gasoline prices, or complete gas supply disruptions, are expected to intensify global inflation pressures over the next two years.

In a bid to combat soaring inflation, global central banks are raising interest rates, with Pereira saying the strategy is “starting to pay off.” However, the OECD said further monetary policy tightening is required in most major advanced economies and in many emerging markets. It expects inflation to remain high in the OECD area, at above 9% in 2022, before moderating to 6.6% next year and 5.1% in 2024. Pereira called on policymakers to invest in energy security, diversify energy supplies and keep international trade flowing.

“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,” OECD Secretary-General Mathias Cormann said. “Until this happens, it is important that governments deploy both short- and medium-term policy measures to confront the crisis, to cushion its impact in the short term while building the foundations for a stronger and sustainable recovery.”

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