Interest rates and inflation boost ‘very challenging’ global outlook: OECD – National

The global economy, dragged down by high interest rates, stagnant inflation and Russia’s war with Ukraine, is expected to grow moderately this year and expand even more moderately in 2023.

That was a sober forecast released Tuesday by the Paris-based Organization for Economic Co-operation and Development. The OECD estimates that global economic growth will remain at his 3.1% this year, down sharply from a solid 5.9% in 2021.

The OECD forecasts that next year will be even worse, with the global economy expanding by just 2.2%.

“It is true that we do not foresee a global recession,” said OECD Secretary-General Matthias Komann at a press conference. I don’t think anyone gets a lot of relief.”

With 38 member countries, the OECD works to promote international trade and prosperity, and publishes regular reports and analyzes. Organization figures showed that 18% of member states’ economic output was spent on energy after Russia’s invasion of Ukraine boosted oil and gas prices. The country faced an energy crisis on a scale comparable to two historic energy price spikes, slowing economic growth and accelerating inflation.

Inflation — Driven largely by high energy prices, “inflation has become widespread and persistent,” Koeman said, adding, “despite supportive measures by many governments. , real household incomes are weakening in many countries.”

In its latest forecast, the OECD said that as the US Federal Reserve (Fed) aggressively raises interest rates to try to curb inflation (it has raised its base rate six times this year, significantly higher), the US economy will I expect it to almost stop. The US, the world’s largest economy, is expected to grow just 1.8% this year (down from 5.9% in 2021), 0.5% in 2023 and 1% in 2024. .

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That grim outlook is widely shared. Most economists expect the United States to enter at least a mild recession next year, but the OECD has not made a specific forecast.

The report predicts that US inflation will slow but stay well above the Fed’s 2% annual target from next year to 2024.

The OECD’s forecasts for the 19 European nations that share the euro currency endure an energy crisis from Russia’s war are hardly bright. The organization expects growth to be just 0.5% next year across the Eurozone before accelerating slightly to 1.4% in 2024.

We also expect inflation to continue to weigh on the continent. The OECD forecasts that consumer prices, which rose by only 2.6% in 2021, will rise by 8.3% in 2022 and 6.8% in 2023.

According to the OECD, next year’s global economic growth will come mainly from emerging markets in Asia.

It estimates that these countries will account for three-quarters of the world’s economic growth next year, even as the US and European economies falter. For example, India’s economy is expected to grow by 6.6% this year and next year he is expected to grow by 5.7%.

The Chinese economy, which not so long ago boasted double-digit annual growth, is expected to grow just 3.3% this year and 4.6% in 2023. A zero COVID policy that disrupted commerce.

The global economy has surged out of the pandemic recession of early 2020, fueled by huge government spending and record-low interest rates. The recovery was so strong that it overwhelmed factories, ports and freight yards, causing shortages and rising prices. Moscow’s invasion of Ukraine in February disrupted trade in energy and food, further pushing up prices.

After decades of low prices and ultra-low interest rates, the impact of chronically high inflation and interest rates is unpredictable.

“Monetary strategies implemented during a prolonged period of very low interest rates can be exposed to rapid interest rate rises and stress in unexpected ways,” the OECD said in a report on Tuesday.

Higher interest rates designed by the Federal Reserve and other central banks will make it difficult for heavily indebted governments, businesses and consumers to pay their bills. A stronger US dollar has put foreign companies that have borrowed in US dollars at risk and may now lack the means to service their more costly debt.

© 2022 The Canadian Press