World growth set to plunge: OECD

Beset by high-interest rates, soaring inflation and Russia’s war against Ukraine, the world economic growth is set to plunge this year to 3.1 per cent this year from a robust 5.9 per cent in 2021, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

Amid the effects of Russia's war in Ukraine, "growth has lost momentum, high inflation is proving persistent, confidence has weakened, and uncertainty is high," OECD said in its latest forecast.

For 2023, the Paris-based organisation predicts a starker scenario, predicting global growth of 2.2 per cent.

“It is true we are not predicting a global recession,” OECD Secretary-General Mathias Cormann said. “But this is a very, very challenging outlook, and I don’t think that anyone will take great comfort from the projection of 2.2 per cent global growth.”

OECD chief economist Alvaro Santos Pereira said the global economy was "reeling from the largest energy crisis since the 1970s".

The energy shock has pushed inflation up to levels not seen for many decades and is hitting economic growth around the world, he added.

Inflation had already been on the rise before the conflict due to bottlenecks in the global supply chain after countries emerged from Covid lockdowns.

"Our central scenario is not a global recession but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries," Pereira said.

Fighting inflation is a "top policy priority” as soaring prices erode people's purchasing power worldwide, he said.

The UK will be the second weakest performer of the world’s big economies next year as the global economy continues to suffer the knock-on effects of the biggest energy shock in four decades while the US, the world's largest economy, would grow just 1.8 per cent this year (down drastically from 5.9 per cent in 2021), 0.5 per cent in 2023 and one per cent in 2024. The OECD economist said the UK’s poor performance was because of a combination of rising interest rates, government action to bring down borrowing and debt, and the market turbulence during Liz Truss’s brief period as prime minister.

China's economy, which not long ago boasted double-digit annual growth, will expand just 3.3 per cent this year and 4.6 per cent in 2023. The world's second-biggest economy has been hobbled by weakness in its real estate markets, high debts, and draconian zero-Covid policies that have disrupted commerce.

“Whatever growth the international economy produces next year, will come largely from the emerging market countries of Asia: Together, they will account for three-quarters of world growth next year while the US and European economies falter. India's economy, for instance, is expected to grow 6.6 per cent this year and 5.7 per cent next year,” OECD said.

OECD expects overall growth across its 38 rich-country members to be 0.8 per cent in 2023 – half the level expected six months ago.

Of the three biggest EU economies, Germany is forecast to be the third worst-performing G20 country (-0.3 per cent), while Italy (0.2 per cent) and France (0.6 per cent) are likely to post modest growth, according to the OECD.

“Higher inflation and lower growth are the hefty price that the global economy is paying for Russia’s war of aggression against Ukraine. Although prices were already creeping up due to the rapid rebound from the pandemic and related supply chain constraints, inflation soared and became much more pervasive around the world following Russia’s invasion,” the forecast said.

— issacjohn@khaleejtimes.com

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