OECD: Global growth much lower due to the war in Ukraine – Risk of recession in Eurozone countries

Ominous are the forecasts of the OECD (Organization for Economic Co-operation and Development) for the global economy in its interim report, entitled “paying the price of war”, which was released today.

The OECD notes that global economic growth stalled in the second quarter of 2022 and will be much lower in 2023 than forecast a year ago.

The agency estimates that actual incomes may be lower by about $2.8 trillion. dollars compared to what was forecast a year ago, an amount equivalent to 2% of global GDP based on purchasing power parity.

The price will be greater for the Eurozone, which is forecast to see growth slow to just 0.3% in 2023 and average inflation to fall to 6.2% from 8.1% this year.

The OECD notes that there is a risk of recession in several European economies during the winter months and that a further reduction in energy supplies from Russia would lead to a significantly larger reduction in economic activity than in the baseline scenario.

“Gas and electricity prices are already very high and could rise further if there are shortages in Europe. Such shortages could arise if energy supplies outside the EU do not materialize to the expected extent or if gas demand is exceptionally high due to a severe winter,” the report says.

In such a scenario, global natural gas prices are estimated to increase by 50% from the first quarter of 2023, while oil prices will increase by 10% and fertilizer by 25%.

The shock from the new energy price hike is estimated to lead to 1.5 percentage points lower growth in the Eurozone economy than in the baseline scenario, meaning that many of its countries will be in recession throughout 2023, while growth will weaken and in 2024.

The OECD sees the general trend of rising interest rates in major economies as a key factor slowing global growth. Other factors are the erosion of the real disposable income of households due to inflation, low consumer confidence and high prices of energy and especially natural gas.

It notes that further interest rate hikes are needed in most major advanced economies to ensure that the reduction in inflationary pressures is durable. For the ECB’s main refinancing rate, which currently stands at 1.25%, the OECD expects it to rise to 4% in 2023, while it estimates that the ECB will use all its flexibility in reinvesting its bond proceeds on its balance sheet and expire in order to limit financial fragmentation in the Eurozone.

For the US economy, the OECD predicts growth of just 0.5% in 2023 and inflation falling below 4%. In G20 countries, inflation is forecast to fall to 6.5% in 2023 from 8.2% this year and in advanced G20 economies to 4% from 6.2%, respectively.

RES-EMP

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