The Organization for Economic Cooperation and Development said on Monday that the global economy is slower than anticipated as Russia's war in Ukraine and global inflation forces major central banks to raise interest rates at the fastest pace in decades.
The Paris-based organizations see the global economy expanding by 3.0% this year, but are projecting a major slowdown next year, with growth decelerating to just 2.2%. It's a big change from the 2.8% rate predicted in June, and marks a $2.8 trillion decline in global output.
In the U.S., growth is expected to drop to 1.5% this year and 0.5% in 2023. The OECD expects the euro zone to grow just 1.25% this year, with risks of a deep decline in several nations during the winter and 0.3% in 2023. Slowdowns in Germany and Spain are seen within the nations that use the euro, according to the OECD.
The war in Ukraine has pushed the global cost of essential commodities like food and fertilizer to the highest level in years, exacerbating already high inflation. It has also pushed energy prices higher, causing a further weakening of household spending in Europe.
As is often the case, the OECD warned that high prices, including soaring costs for food and energy, will hit low-income countries the hardest.
Lockdowns in China that are intended to stop the spread of COVID 19 have disrupted manufacturing and supply chain disruptions.
In most of the Group of 20 countries, inflation is expected to drop slowly over the next year as major central banks tighten monetary policy, stalling growth. The headline inflation of the OECD fell from 8.2% this year to 6.6% in 2023, which is well above the central banks' target of 2%.
Cormann said that these challenging economic situations will require bold, well-designed and well-coordinated policies.