HomeWorld NewsOECD Forecast: High Rates and Inflation to Slow Global Growth

OECD Forecast: High Rates and Inflation to Slow Global Growth

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Hampered by high interest rates, punitive inflation and Russia’s war on Ukraine, the world economy is expected to post modest growth this year and expand even more tepidly in 2023.

That was the sobering forecast issued Tuesday by the Paris-based Organization for Economic Cooperation and Development. According to the OECD estimate, the world economy will grow just 3.1% this year, a sharp drop from a solid 5.9% in 2021.

Next year, the OECD predicts, will be even worse: the international economy will expand by just 2.2% in 2023, it estimates.

The OECD, made up of 38 member countries, works to promote international trade and prosperity and issues regular reports and analysis. In its latest forecast, the organization predicts that the Fed’s aggressive push to control inflation with higher interest rates (it raised its benchmark rate six times this year, in substantial increments) will nearly cripple the US economy. He expects the United States, the world’s largest economy, to grow just 1.8% this year (up from 5.9% in 2021), 0.5% in 2023 and 1% in 2024.

That bleak outlook is widely shared. Most economists expect the United States to enter at least a mild recession next year, although the OECD did not specifically predict one.

The report forecasts that US inflation, while slowing, will remain well above the Fed’s 2% annual target next year and into 2024.

The OECD forecast for the 19 European countries that share the euro, which are enduring crippling energy shortages due to the war in Russia, is no brighter. The organization expects the eurozone to collectively manage just 0.5% growth next year before accelerating slightly to 1.4% in 2024.

And expect inflation to continue to squeeze the continent: The OECD predicts that consumer prices, which rose just 2.6% in 2021, will rise 8.3% for all of 2022 and 6.8% in 2023.

Whatever growth the international economy produces next year, says the OECD, it will largely come from the emerging market countries of Asia: together, it estimates, they will account for three-quarters of global growth next year, while the US and European economies are reeling. India’s economy, for example, is expected to grow 6.6% this year and 5.7% next year.

China’s economy, which not long ago boasted double-digit annual growth, will expand just 3.3% this year and 4.6% in 2023. The world’s second-largest economy has been hampered by weak of its real estate markets, the high debts and the draconian zero profitability. COVID policies that have disrupted trade.

Fueled by huge government spending and record borrowing rates, the global economy rocketed out of the pandemic recession of early 2020. The recovery was so strong that it overwhelmed factories, ports and freight yards, causing shortages and prices. Taller. Moscow’s invasion of Ukraine in February disrupted trade in energy and food and pushed prices even higher.

After decades of low prices and ultra-low interest rates, the consequences of inflation and chronically high interest rates are unpredictable.

“Financial strategies implemented during the long period of extremely low interest rates may be exposed by rapidly rising rates and exert stress in unexpected ways,” the OECD said in Tuesday’s report.

Higher rates being engineered by the Federal Reserve and other central banks will make it harder for heavily indebted governments, businesses and consumers to pay their bills. In particular, a stronger US dollar, stemming in part from higher US rates, will jeopardize foreign companies that borrowed in the US currency and may lack the means to service their now more expensive debt.

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