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The 38-nation Organization for Economic Cooperation and Development (OECD) has pared its 2022 global growth forecast from 4.5 percent, which it forecast in December, to 3 percent, a one-third reduction.
The prediction aligns with that of the World Bank, which now says worldwide GDP will expand by 2.9 percent this year instead of 4.1 percent, which the bank saw at the beginning of this year.
The world’s GDP will expand by 2.8 percent next year, the OECD predicted, cutting its December forecast of 3.2 percent.
Inflation will average 9 percent this year among member countries, the agency said.
The OECD trimmed its outlook for U.S. growth in 2022 from 3.7 percent to 2.5 and from 2.4 to 1.2 percent next year.
However, the U.S. also could face periods of contraction if energy prices zoom higher or if the U.S. Federal Reserve’s campaign of interest rate hikes wobble the economy, the report cautioned.
“Growth is set to be considerably weaker than expected in most economies, especially in Europe, where an embargo on oil and coal imports from Russia is incorporated into the projections for 2023,” the report said.
The embargo cuts off a main source of fuel for Europe and is expected to have a dramatically negative effect on the region’s productivity.
Still, the 19-member Eurozone will grow 2.6 percent this year, edging past the U.S., which will expand 2.5 percent, the OECD predicted.
“The invasion of Ukraine, along with shutdowns of major cities and ports in China due to [China’s] zero-COVID policy, has generated a new set of adverse shocks,” the OECD said last week in its latest economic outlook report.
The war will send food prices higher in rich countries and lead to food shortages and hunger in poor ones, the group warned.
The group did not highlight the role that Western sanctions play in the looming food shortage.
“The world is already paying the price for Russia’s aggression,” OECD chief economist Laurence Boone said in a public statement.
“The choices made by policy makers and citizens will be crucial in determining how that price will be distributed across people and countries,” she added.
China’s GDP will grow 4.4 percent this year, India 6.9 percent, and Brazil 0.6 percent, the report said. Russia’s GDP is on track to shrink 10 percent this year and 4.1 percent in 2023.
TREND FORECAST: Our previous forecast that China will fail to meet its goal of 5.5-percent growth this year is proving correct.
However, we also believe that the OECD’s forecasts are too optimistic.
Interest rates in many major economies are rising enough to slow economic activity but not enough to slow inflation in a meaningful way.
Inflation will continue; oil markets indicate that energy prices will keep growing. U.S. consumers are still spending, even though they have to cut into their savings to do it, which we reported in “Americans: Spending More, Saving Less” (7 Jun 2022).
With prices rising and Chinese consumers’ spending continuing to be weak, as we noted in “China’s Economy is Shrinking” (10 May 2022), China will continue to struggle even as the government showers consumers with new goodies. (See “China’s Export Economy Rebounds” in this issue.)