New reports highlight gloomy outlook for global economy

Two heavyweight reports on prospects for the world economy make grim reading, highlighting the devastating effect of the war in Ukraine on top of the damage wrought by the pandemic.

The OECD, in its twice-yearly World Economic Outlook today, warned of the “hefty price” of taking a stance against Russia’s invasion, forecasting lower growth and high inflation, with poorer countries hit particularly hard.

The club of rich nations cut its global growth forecast for this year to 3 per cent, down from 4.5 per cent in December, even lower than the IMF’s recent estimate of 3.6 per cent. For 2023, growth would be still lower at 2.8 per cent.

The OECD expects inflation to average 8.5 per cent across the bloc in 2022 and 6 per cent in 2023, with energy price rises spreading out into other areas. The OECD singled out the UK, which it said would experience the weakest growth in the G20 outside Russia next year, hit by a unique combination of high inflation, rising interest rates, increasing taxes and “probably a bit of Brexit”. The forecast was 3.6 per cent for this year and zero for 2023 as the economy stagnated “due to depressed demand”.

The organisation warned against letting poor countries shoulder the burden of the war, particularly the threat to food supplies, a danger also highlighted today by Turkey’s foreign minister. Commodities correspondent Emiko Terazono says the west must move fast to tackle the crisis as grain importers teeter on the edge of catastrophe, while Russian president Vladimir Putin tries to throw the blame on to western sanctions. Today the Kremlin rejected claims that war was fuelling the situation.

The OECD report follows yesterday’s Global Economic Prospects update from the World Bank, which highlighted the damage from the war to developing countries and the prospects of a debt crisis, with 75mn more people pushed into extreme poverty than expected in 2019. It likened global conditions to those of the 1970s, when inflation led to steep interest rate rises and a global recession.

Warning signs are already visible in global finance with emerging markets hit by the worst sell off in decades as investors rush to safety.

The war in Ukraine meant stark choices for the west, said OECD chief economist Laurence Boone. “There is a price [of Russia’s invasion] and the questions for policymakers are, how high is the price, and how should it be shared. If you don’t share it well, the price will be higher.”

Source: Financial Times