Global growth will slow further in the year ahead, but the world may avoid recession thanks to Asia’s largest economy.
Global GDP is expected to grow by 3.1% this year and only 2.2% by 2023, according to the latest forecasts from the Organization for Economic Co-operation and Development (OECD).
While the OECD does not predict a recession, its forecasts are more pessimistic than those of the International Monetary Fund (IMF), which said last month it expects the world economy to expand by 3.2% this year and 2.7% next year.
The OECD said in a statement on Tuesday that the “fragile outlook” for the global economy was a direct result of Russia’s war in Ukraine, which has sparked an energy crisis and fueled global inflation.
“Persistent inflation, high energy prices, weak real household income growth, falling confidence and tightening financial conditions are all expected to dampen growth,” it added. IGrowth could be weaker than expected if energy prices rise further or energy supplies are disrupted.
Growth next year is “strongly reliant” on major Asian economies, which will account for nearly three-quarters of global GDP growth, while the U.S. and Europe will decelerate “sharply,” the OECD said.
India is expected to have the second-highest growth rate in the world after Saudi Arabia at 6.6% in 2022 and 5.7% in 2023. China’s economy is expected to grow 3.3% this year and 4.6% in 2023.
In contrast, the US is projected to grow only 1.8% in 2022 and 0.5% in 2023. Growth in the 19 EU countries that use the euro is also expected to decline sharply over the next two years from 3.3 percent in 2022 to 0.5 percent in 2023.
OECD Secretary-General Mattias Colemann told reporters on Tuesday that the growth in Europe and the U.S. was partly due to government spending on energy subsidies and policies to boost investment, such as the Next Generation EU and Lower Inflation Acts.
Savings accumulated by households and businesses early in the pandemic would also help support spending, he added.
“An end to the war and a just peace for Ukraine would be the most effective way to improve the outlook for the global economy right now,” Cormann said.
The OECD expects inflation in advanced economies to remain above 9% this year. It is then projected to fall back to 6.6% by 2023, slightly higher than the IMF forecast.
Major central banks aim to keep inflation close to 2 percent and have been raising interest rates to limit price rises. But the campaign has also raised the cost of debt servicing for households, businesses and governments, increasing economic risk.
“Raising interest rates, while necessary to moderate inflation, would increase the financial challenges for household and business borrowers,” the OECD said.
“Low-income countries will remain particularly vulnerable to high food and energy prices, while tighter global financial conditions could increase the risk of further debt distress,” it added.
World Bank President David Malpass recently told CNN that the group is “concerned about a world recession in 2023,” but that the U.S. is “a little bit stronger than other economies.”
— Julia Horowitz contributed to this report.