Russia’s invasion of Ukraine, soaring energy bills and record-breaking inflation have thrown the worldwide economy into disarray, triggering an “prolonged period of subdued growth,” based on the most recent forecast by the Organisation for Economic Co-operation and Development (OECD).
Germany, the EU’s industrial powerhouse, is projected to fall into recession next yr.
“The worldwide growth outlook has darkened,” the OECD said, in a report titled “Paying the Price of War”released on Monday morning.
The study paints a bleak picture of the world economy: business confidence, disposable incomes and household expenditure all plummet while the prices of fuels, food and transportation surge.
Inflation has change into “broad-based” and can steadily ease throughout 2023, but still remain exceptionally high, as tighter financial conditions resulting from steep hikes in rates of interest slowly yield results.
For Europe, the forecast is especially gloomy within the event of a colder-than-usual winter: underground gas storage could be depleted and energy prices would soar, prompting shortages and industrial paralysis.
“This may push many countries right into a full-year recession in 2023,” the OECD says within the event of winter disruptions and enforced gas reductions.
The organisation also warns of the likelihood that the sanctions against Russian oil, considered one of Moscow’s top revenue sources, could prove “more disruptive than anticipated.”
The EU-wide embargo will take effect at the tip of the yr, taking about two million barrels per day of Russian crude and refined products off the market.
If Russia is unable to reroute these supplies to other regions, international prices will shoot up, adding much more pressure on the already-volatile energy supply chains.
“The worldwide economy has lost momentum this yr,” the report notes. “After bouncing back strongly from the COVID-19 pandemic, a return to a more normal economic situation seemed to be in prospect prior to Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine.”
Russia and Germany head into recession
Of all of the countries analysed within the report, Russia is by far the worst-hit: the country, which has been hit by unprecedented Western sanctions, is projected to contract by 5.5% in 2022 and by 4.5% in 2023.
Meanwhile, Germany will end this yr with a 1.2% positive expansion but will decline by 0.7% next yr. Recession fears are looming large over the country, which until early this yr was a big consumer of Russian gas and is now scrambling to seek out alternative suppliers.
“The signs of a recession for the German economy are multiplying,” Germany’s central bank, the Bundesbank, said last week.
A recession is defined as two consecutive quarters of decline in gross domestic product (GDP).
The opposite European economies included within the OECD’s study fare barely higher. France, Italy and Spain will see modest growth rates in 2023, at 0.6%, 0.4% and 1.5%, respectively, which implies they may too fall into recession at one point but still end the yr with moderate positive growth.
The eurozone will expand by 3.1% in 2022 and by a meagre 0.3% in 2023. Inflation will average 6.2% next yr, over thrice the two% goal desired by the European Central Bank.
These pessimistic estimations could deteriorate if the energy crisis takes a turn for the more severe.
“Significant uncertainty surrounds the projections. More severe fuel shortages, especially for gas, could reduce growth in Europe by an extra 1.25 percentage points in 2023,” the OECD says.
Speaking before the European Parliament on Monday afternoon, ECB President Christine Lagarde also struck an ominous note and warned “uncertainty stays high.”
“The outlook is darkening,” she told MEPs. “We expect activity to slow substantially in the approaching quarters.”
Beyond the bloc, the OECD expects the USA to grow by 0.5% next yr, while the UK will post a 0% rate, meaning it’ll neither expand nor contract.
Japan, Canada, Argentina, Brazil, South Africa and Mexico will all see limited rates, below the two% mark.
China, a driving engine of the world economy that’s pursuing a strict zero-Covid policy, will expand by 3.2% in 2022 after which speed as much as 4.7% in 2023.
Alternatively, Saudi Arabia appears to enjoy an economic boom, “buoyed by high energy prices.” The oil-rich country is estimated to swell by almost 10% this yr and 6% next yr.
Overall, the world economy will grow by 3% in 2022 and a pair of.2% in 2023, a downward revision in comparison with the previous OECD estimate.