The global economy is expected to slow further in the coming year as the massive energy shock triggered by Russia’s war of aggression against Ukraine continues to spur inflationary pressures and increasing risks worldwide.
The global economy is projected to grow well below the outcomes expected before the war – at a modest 3.1 per cent this year, before slowing to 2.2 per cent in 2023 and recovering moderately to a still sub-par 2.7 per cent pace in 2024.
Growth in 2023 is strongly dependent on the major Asian emerging market economies, who will account for close to three-quarters of global GDP growth next year, with the United States and Europe decelerating sharply.
Persistent inflation, high energy prices, weak real household income growth, and tighter financial conditions are all expected to curtail growth. Higher interest rates, while necessary to moderate inflation, will increase financial challenges for both households and corporate borrowers. Inflation is projected to remain high in the OECD area, at more than nine per cent this year. As tighter monetary policy takes effect, demand and energy price pressures diminish and transport costs and delivery times continue to normalise, inflation will gradually moderate to 6.6 per cent in 2023 and 5.1 per cent in 2024.
The OECD points to substantial uncertainty surrounding the economic outlook. Growth may be weaker than projected if energy prices rise further, or if energy supply disruptions affect gas and electricity markets in Europe and Asia.
Rising global interest rates may put many households, firms and governments under greater pressure as debt service burdens rise. Low-income countries will remain particularly vulnerable to high food and energy prices, while tighter global financial conditions may raise the risk of further debt distress. Managing the energy crisis will require more decisive policy support to boost investment in clean technologies, foster energy efficiency, secure alternative supplies and realign policy.
Elevated uncertainty, slowing growth, strong inflationary pressure and the ongoing impact of the war in Ukraine on energy markets leave policymakers with difficult choices in order to maintain macroeconomic stability and improve the prospects for sustainable and inclusive growth over the medium term.