The global economy is slowing more than was anticipated a few months ago as Russia's war in Ukraine and global inflation forces major central banks to raise interest rates at the fastest pace in decades, the Organization for Economic Cooperation and Development said Monday in a grim outlook.
The Paris-based organizations still sees the global economy expanding 3.0% this year, but is projecting a major slowdown next year, with growth decelerating to just 2.2%. That is a sharp change from the 2.8% rate it predicted in June and marks a $2.8 trillion decline in global output.
In the U.S., growth is expected to cool off to 1.5% this year and 0.5% in 2023. The OECD expects the euro zone to grow just 1.25% this year, with risks of a deep decline in several nations during the winter, and 0.3% in 2023. Within the nations that use the euro, the OECD sees slowdowns in Germany and Spain.
The war in Ukraine has pushed the global cost of essential commodities like food and fertilizer to the highest level in years, exacerbating already high inflation. It has also pushed energy prices even higher, further weakening household spending in Europe.
As is often the case, the OECD warned that high prices, including soaring costs for food and energy, will hit low-income countries the hardest.
"The global economy has lost momentum in the wake of Russia's unprovoked, unjustifiable and illegal war of aggression against Ukraine," OECD Secretary-General Mathias Cormann said in a statement. "GDP [gross domestic product] growth has stalled in many economies and economic indicators point to an extended slowdown."
Lockdowns in China that are intended to stop the spread of COVID-19 have also further disrupted manufacturing and supply chain disruptions.
Inflation is expected to drop gradually through next year in most Group of 20 countries as major central banks continue to tighten monetary policy, stalling growth. The OECD sees headline inflation easing from 8.2% this year to 6.6% in 2023 — well above many central banks' targets of 2%.
"These challenging economic situations will require bold, well-designed and well-coordinated policies," Cormann said.