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The global economy should avoid a recession next year, but the worst energy crisis since the 1970s will trigger a sharp slowdown, with Europe the hardest hit, the OECD said, adding that the fight against inflation should be the top priority for decision makers.
The national outlook varies widely, although Britain’s economy lags its major peers, the Organization for Economic Co-operation and Development said on Tuesday.
It predicted that global economic growth would slow from 3.1% this year – slightly more than the OECD had forecast in its September projections – to 2.2% next year, before accelerating to 2 .7% in 2024.
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“We don’t foresee a recession, but we certainly foresee a period of pronounced weakness,” OECD Director-General Mathias Cormann said at a press conference to present the organization’s latest economic outlook.
The OECD said the global slowdown was hitting economies unevenly, with Europe hardest hit as Russia’s war in Ukraine hits business activity and drives energy prices soaring.
It predicted that the eurozone economy of the 19 countries would grow 3.3% this year, then slow to 0.5% in 2023 before recovering to grow 1.4% in 2024. That was slightly better than in the OECD’s September outlook, when it forecast growth of 3.1%. this year and 0.3% in 2023.
The OECD has predicted a 0.3% contraction next year in regional heavyweight Germany, whose industry-driven economy is heavily dependent on Russian energy exports – less severe than the 0 drop, 7% expected in September.
Even in Europe, the outlook has diverged, with the French economy, which is much less dependent on Russian gas and oil, expected to grow by 0.6% next year. Italy recorded a growth of 0.2%, which means that several quarterly contractions are likely.
Outside the euro zone, the UK economy is expected to shrink by 0.4% next year due to rising interest rates, soaring inflation and weak confidence. Previously, the OECD was counting on growth of 0.2%.
The US economy should 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 OECD had previously forecast growth of just 1 .5% 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 set to see growth resume next year, following a wave of COVID-related lockdowns. Growth there fell from 3.3% this year to 4.6% in 2023 and 4.1% in 2024, compared to earlier forecasts of 3.2% in 2022 and 4.7% for 2023.
As tighter monetary policy takes effect and pressures on energy prices ease, inflation in OECD countries has fallen from over 9% this year to 5.1% by 2024.
“On monetary policy, further tightening is needed in most advanced economies and many emerging market economies to firmly anchor inflation expectations,” Cormann said.
While many governments had already spent heavily to cushion the pain of high inflation with energy price caps, tax cuts and subsidies, the OECD said the high cost meant such support should be better targeted in the future.