©Health & Fitness Journal. FILE PHOTO: A view shows the skyline of Frankfurt, Germany, July 5, 2022. REUTERS/Kai Pfaffenbach/File Photo
PARIS (Health & Fitness Journal) – The global economy should avoid a recession next year, but the worst energy crisis since the 1970s will trigger a sharp slowdown, with Europe being hit hardest, the OECD said, adding that fighting inflation is the top priority should be a priority for policy makers.
National prospects vary widely, although the UK economy will lag behind major rivals, the Organization for Economic Co-operation and Development said on Tuesday.
It forecast that global economic growth would slow to 2.2% next year from 3.1% this year – slightly more than the OECD had forecast in its September forecasts – before accelerating to 2.7% in 2024 would.
“We are not predicting a recession, but we are certainly forecasting a period of pronounced weakness,” said OECD chief Mathias Cormann at a news conference to present the organization’s latest economic outlook.
The OECD said the global slowdown was hitting economies unevenly, with Europe bearing the brunt as Russia’s war in Ukraine hit business activity and sparked a surge in energy prices.
It forecast that the economies of the 19 eurozone countries would grow 3.3% this year and then slow to 0.5% in 2023 before recovering and expanding 1.4% in 2024. That was slightly better than the OECD’s September outlook, when it estimated growth of 3.1% this year and 0.3% in 2023.
The OECD forecast a 0.3% decline next year for regional heavyweight Germany, whose industry-driven economy is heavily dependent on Russian energy exports – less severe than the 0.7% slump expected in September.
Even in Europe, prospects were mixed, with the French economy, far less dependent on Russian gas and oil, expected to grow 0.6% next year. Italy posted 0.2% growth, meaning multiple quarterly contractions are likely.
Outside the eurozone, the UK economy contracted 0.4% over the next year as it grapples with rising interest rates, rising inflation and weak confidence. The OECD had previously expected growth of 0.2%.
The US economy should hold up better, with growth slowing to 0.5% in 2023 from 1.8% this year, before picking up to 1.0% in 2024. The OECD had previously expected just 1.5% growth this year in the world’s largest economy and its estimate for 2023 remained unchanged.
China, which is not an OECD member, was one of the few major economies expected to pick up again next year after a wave of COVID lockdowns. Growth there rose 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% in 2023.
As tightening monetary policy takes hold and pressure on energy prices eases, inflation in OECD countries has fallen from more than 9% this year to 5.1% by 2024.
“Further monetary policy tightening is needed in most advanced economies and in many emerging markets to firmly anchor inflation expectations,” Cormann said.
While many governments had already spent big bucks to ease the pain of high inflation with energy price caps, tax cuts and subsidies, the OECD said the high cost means such support will need to be more targeted going forward.