Leading economies slide into recession as war in Ukraine cuts growth, OECD finds | Business

The world’s leading economies are sliding into recession as the global energy and inflation crisis triggered by Russia’s invasion of Ukraine cut growth by more than previously forecast, according to the Organization for Economic Co-operation and Development (OECD).

A reliance on expensive gas for heavy industry and home heating will plunge Germany, Italy and Britain into a long period of recession after global growth was forecast by the OECD to slow to 2.2% in 2023 from a June forecast of 2 .8%.

With the global economy needing to grow by around 4% to keep pace with rising populations, the OECD said per capita incomes would be lower in many countries.

The OECD’s interim chief economist, Álvaro Pereira, said the world is paying a high price for the Ukraine war and Russia’s decision to restrict access to gas supplies more severely than predicted in June.

He said governments must encourage households and businesses to reduce their consumption of gas and oil to cope with a difficult winter.

Pereira also supported central banks’ determination to reduce inflation by raising interest rates. “We have to reduce demand, there is no doubt about that. And monetary and fiscal authorities must work hand in hand to achieve that, he said.

China’s growth rate is expected to fall this year to 3.2% – the lowest since the 1970s – causing a big drop in trade with neighboring South Korea, Vietnam and Japan, dragging down their ability to grow.

A recovery in China next year to 4.7% will be weaker than expected, the OECD said, as Beijing struggles with a property market and banking sector weighed down by huge debt.

However, the Paris-based political forum was most alarmed by the outlook across Europe, which is most directly exposed to the fallout from Russia’s war in Ukraine.

The OECD predicted that UK GDP growth would be flat in 2023. However, this projection does not take into account the measures announced in Chancellor Kwasi Kwarteng’s mini-budget on Friday.

The OECD forecast a fall in eurozone growth from 3.1% this year to just 0.3% in 2023, meaning many countries in the 19-member currency bloc will spend at least part of the year in recession. A recession is defined as two straight quarters of contraction.

France can escape recession if it grows by 0.8% next year as forecast by the OECD, but will suffer along with other European countries after the downgrade in GDP growth since June to 1.3 percentage points.

Russia will shrink by at least 5.5% this year and 4.5% in 2023. Berlin’s reliance on Russian gas before the invasion means the German economy will shrink by 0.7% next year, down from a June estimate of 1, 7% growth.

The OECD warned that further disruptions in energy supply would hit growth and raise inflation, particularly in Europe, where they could set activity back by a further 1.25 percentage points and boost inflation by 1.5 percentage points, pushing many countries into full-year recession 2023.

Global output next year is estimated to be $2.8bn (£2.6bn) lower than the OECD forecast before Russia attacked Ukraine – a loss of global income equivalent to the UK economy.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustified and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to a prolonged slowdown, said the organization’s secretary general, Mathias Cormann.

A review of the outlook for the US found that while it was likely to grow slowly this year and be in recession for parts of 2023, it was less dependent than other countries on energy from Russia or other sources, allowing for a strong recovery in 2024.

The OECD forecast the world’s largest economy would slow from 1.5% growth this year to just 0.5% next year, down from forecasts in June of 2.5% in 2022 and 1.2% in 2023.

World Bank officials have urged central banks to refrain from competitive interest rate hikes that would push the global economy into recession and hurt the economies of developing countries the most.

Still, the OECD said further rate hikes were needed to fight inflation and predicted most major central banks’ policy rates would reach at least 4% next year.