December 7, 2022

Europe will be hardest hit in the global slowdown - OECD

Europe will be hardest hit in the global slowdown – OECD

  • Global growth has seen a decline from 3.1% in 2022 to 2.2% in 2023
  • National projections vary widely, with the UK lagging behind other economies
  • Urging central banks to continue raising interest rates

PARIS (Reuters) – The global economy must avoid a recession next year, but the worst energy crisis since the 1970s will lead to a sharp slowdown with Europe hit hard, the Organization for Economic Cooperation and Development said, adding that fighting inflation should be a priority for policymakers. .

The Organization for Economic Co-operation and Development said on Tuesday that the national outlook varies widely, although Britain’s economy is set to lag behind major peers.

It expects global economic growth to slow from 3.1% this year – slightly more than the Organization for Economic Co-operation and Development expected in its forecast in September – to 2.2% next year, before accelerating to 2.7% in 2024.

“We don’t expect a recession, but we certainly do expect a period of clear weakness,” OECD President Matthias Cormann told a news conference to present the organization’s latest economic outlook.

The OECD said the global slowdown is hurting economies disproportionately, with Europe bearing the brunt as Russia’s war in Ukraine hurts business activity and drives up energy prices.

It expects the 19-country eurozone economy to grow 3.3% this year, then slow to 0.5% in 2023 before recovering to expand 1.4% in 2024. That was slightly better than the OECD’s September forecast, which estimated a growth of 3.1%. this year and 0.3% in 2023.

The Organization for Economic Co-operation and Development predicted a 0.3% contraction next year in regional heavyweight Germany, whose industry-driven economy relies heavily on Russian energy exports — less severe than the 0.7% decline expected in September.

An image shows the skyline of the German city of Frankfurt on July 5, 2022. REUTERS/Kai Pfaffenbach/File Photo

Even in Europe, expectations differed, as the French economy, which is less dependent on Russian gas and oil, is expected to grow by 0.6% next year. Italy was seen growing by 0.2%, which means several quarterly contractions are likely.

Outside the eurozone, the British economy contracted by 0.4% next year as it deals with higher interest rates, rising inflation and weaker confidence. The Organization for Economic Co-operation and Development previously forecast a growth of 0.2%.

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The US economy was about to hold up better, with growth expected to slow from 1.8% this year to 0.5% in 2023 before picking up to 1.0% in 2024. The Organization for Economic Co-operation and Development previously predicted growth of just 1.5% this year in the largest economy in the world. Its estimate for 2023 has not changed.

China, which is not a member of the Organization for Economic Co-operation and Development, was one of the few major economies expected to see a pickup in growth next year, after a wave of coronavirus lockdowns. It saw growth there pick up from 3.3% this year to 4.6% in 2023 and 4.1% in 2024, compared to previous forecasts of 3.2% in 2022 and 4.7% for 2023.

With the activation of tighter monetary policy and easing of energy price pressures, inflation in OECD countries has seen a decline from more than 9% this year to 5.1% by 2024.

“On monetary policy, further tightening is needed in most advanced economies and in many emerging market economies to firmly anchor inflation expectations,” Korman said.

While many governments have already spent heavily to ease the pain of high inflation with caps on energy prices, tax cuts and subsidies, the OECD said the high cost means such subsidies must be better targeted in the future.

(Reporting by Lee Thomas). Editing by Catherine Evans

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