The world will pay the 'price of war' in 2023, warns the OECD

The world will pay the ‘price of war’ in 2023, warns the OECD

The war in Ukraine will continue to be expensive: the OECD has significantly lowered its global growth forecast for next year as the effects of the conflict last longer than expected, with Europe paying the biggest bill.

“The world is paying a very high price for Russian aggression in Ukraine,” Secretary-General of the Organization for Economic Co-operation and Development Mathias Cormann told a news conference on Monday.

“Households and businesses are suffering,” he continued, noting that “the burden of higher energy and gas prices, as well as China’s zero-COVID policy, imply lower growth and higher inflation and persistent.

The lack of calm on the ground in the eighth month of the Russian invasion of Ukraine, symbolized by Moscow’s recent mobilization of reservists, incites pessimism in the Paris-based international organization.

Mathias Cormann, Secretary General of the OECD, AFP

In its quarterly report, entitled “Paying the price of war”, the OECD forecasts that after a difficult year 2022, especially due to the inflationary outbreak, “global growth should continue to weaken in 2023”.

The OECD expects world GDP to grow by 2.2% compared to the 2.8% forecast in June, although it kept its forecast for 2022 at 3% after having lowered it sharply in recent months.

“Inflationary pressures are increasingly broad based, with rising energy, transport and other costs affecting prices,” writes the OECD, which revised down its near-future forecast for 2023. All the G20 countries, with the exception of Turkey, Indonesia and the United Kingdom, whose economic activity will stagnate.

To show the magnitude of the impact of the war, the OECD has estimated the financial losses expected next year at 2.8 billion dollars compared to the estimates prior to the arrival of the tanks in Ukraine, “that is the size of the French economy” measured in annual GDP, said the institution’s interim chief economist, Álvaro Perreira.

It is logically the neighboring countries of Kyiv and Moscow that will suffer the greatest costs: the growth of the euro zone is subject to a major revision, to 0.3% compared to the 1.6% forecast in June. There, inflation is expected to be 8.1% this year and 6.2% next year.

Shaken for months as a great risk, recession is the scenario adopted by the OECD for Germany: the leading European economy would see, according to the OECD, its GDP fall by 0.7% next year, a drop of 2.4 points compared to the previous forecast.

Its main neighbors escape it: growth of 0.4% is expected in Italy, 1.5% in Spain and 0.6% in France, where the Government continues to have 1%.

The International Monetary Fund forecasts in its latest global outlook growth of 0.8% in Germany, 1% in France and 1.2% in the euro zone, but could revise its figures downward in October.

Among other major regions, the OECD forecasts US growth of 0.5% vs. 1.2% expected in June, and China growth of 4.7% vs. 4.9%.

“There is great uncertainty around these economic projections,” acknowledges the OECD, given the risk of energy shortages during the winter.

The dizzying rise in prices already threatens the activity of a growing number of companies.

According to the OECD, a larger-than-expected gas shortage could, through a cascading effect, reduce the euro zone’s GDP by an additional 1.25 points next year, pushing many states into recession.

This scenario is all the more worrying given that the central banks of developed and emerging countries are firmly committed to raising their interest rates to contain inflation, with the risk of undermining growth there as well.

Rate hikes are “a key factor” in the job slowdown, notes the OECD, calling on central bankers to continue, however.

War, rate hike, COVID-19, debt crisis… The OECD lists all the risks surrounding the economy in its forecasts. From there to lead to a drop in global GDP? “The central scenario is not a global recession, but the risks have increased in recent months,” acknowledged Álvaro Pereira.

Specific and temporary fiscal measures aimed at households and companies are part of the solution to the emergency, underlines the institution, which affirms that until now the measures adopted against the rise in energy prices have been “badly targeted because many times benefit too many households and businesses.

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