The global economic slowdown will cost trillions in lost output in 2023, says the Organization for Economic Cooperation and Development (OECD).
The Paris-based group lowered expectations in its latest economic forecast, projecting 3% global growth this year that will slow to just 2.2% next year. That’s down 0.6 percentage points from its previous forecast.
The OECD pointed to the impact of Russia’s invasion of Ukraine, “which is dragging down growth and putting additional upward pressure on inflation worldwide.” Weaker global growth will translate into around US$2.8 trillion in foregone output in 2023, compared with pre-war expectations.
“The inflation and energy supply shock stemming from the war has led the OECD to revise its previous growth projections downward worldwide,” it said.
The group now sees growth of just 0.5% for the U.S. next year and 0.25% in Europe.
Canada is seen holding up a bit better, with 1.5% growth predicted in 2023, down from 3.4% this year. This represents a sharp reduction from its previous forecast for 2023 of 2.6% growth.
“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” said OECD secretary-general Mathias Cormann, presenting the latest forecast.
“Inflationary pressures that were already present as the global economy emerged from the pandemic have been severely aggravated by the war. This has further driven rising energy and food prices that now threaten living standards for people across the globe.”
As global growth slows and interest rates rise, the OECD projects inflation in most G20 countries to recede gradually through 2023.
“Headline inflation is projected to ease from 8.2% this year to 6.6% in 2023 in the G20 economies, and fall from 6.2% this year to 4% in 2023 in the G20 advanced economies,” it said.
Amid the gloomier outlook the risks are also still tilted to the downside, the OECD noted.
“These include the possibility of further food and energy price spikes, which could push many people into poverty, as well as the possibility of gas shortages as winter progresses in the Northern hemisphere,” it said.
The ongoing turmoil in China’s property markets, and the effects of its continued strict approach to Covid-19, also represent risks to China’s growth — and therefore to the global economy, the OECD noted.
Efforts to provide fiscal support to deal with high energy costs should focus on vulnerable households, and shouldn’t counter incentives to reduce energy consumption, the OECD said.
“Fiscal actions to cushion living standards must avoid persistent stimulus at a time of high inflation,” it stressed.