The OECD has cut its economic forecasts for next year even more than two months ago, especially in Europe due to the impact of the energy crisis aggravated by the Russian invasion of Ukraine, and considers that the number one priority for governments and central banks must be inflation.
In its Outlook report published this Tuesday, the Organization for Economic Co-operation and Development (OECD) estimates that global gross domestic product (GDP) growth is going to slow down seriously, going from 3.1% this year to 2.2% next year. next year.
In addition, the recovery of what is described as “the biggest energy crisis since the 1970s” will take time to arrive, since in 2024 that growth will only rise to a discreet 2.7%.
With the exception of Ireland, which has been subject to an upward revision to 3.8%, and Japan, which remains at 1.8%, the authors of the report have cut forecasts for the other 36 countries in the organization compared to the previous one. semi-annual report that they had published in June.
And for many of those countries they have also had to review it with respect to the interim study that they released at the end of September.
GDP drop in six OECD members in 2023
Although recessionary situations will not be very widespread, six of these countries will see their gross domestic product (GDP) reduced in 2023, particularly due to the impact of the war in Ukraine: Germany (-0.3%), the United Kingdom ( -0.4%), Chile (-0.5%), Sweden (-0.6%), Finland (-0.3%) and Latvia (-0.2%).
The GDP of the euro zone as a whole will only progress by 0.5% (1.6% was expected in June) and the same will happen with that of the United States (1.2% was anticipated). The recovery in both cases will be very timid in 2024, with a progression of 1.4% and 1%, respectively.
This without taking into account that the main risk surrounding these projections is that of a worsening of the energy crisis, especially in Europe this winter, and perhaps even more so next winter due to difficulties in filling gas reserves.
Because, as the OECD warns, even higher gas prices or a supply disruption would cut economic growth and drive up inflation.
In the large emerging economies, although the general trend is also that of a slowdown in 2023, the situation is quite uneven, and a good example is China, which this year is going to have a limited increase in its GDP (3.3%) due to the restrictions due to its zero covid policy, and where a recovery is anticipated in 2023 (4.6%) that should be maintained in 2024 (4.1%).
Sanctions against Russia have little impact so far
The OECD implicitly acknowledges that Western sanctions against Russia over the war are not having anywhere near the impact that they initially predicted.
It is true that he estimates that his economy will suffer a 3.9% recession this year, but in June he estimated that the downturn would be 10%. The authors of the study affirm that the situation there will worsen much more next year, with a fall of 5.6%, and the decline in GDP will continue in 2024 (-0.2%).
The chief economist of the OECD, Alvaro Santos Pereira, insists that the fight against inflation “now has to be our first priority, and that happens through the rise in interest rates that the central banks are applying, which is already having an effect .
According to his projections, this increase will have to continue during the remainder of 2022 and in the first half of 2023 to reach a rate of more than 4% for the European Central Bank (ECB) and 5% for the Federal Reserve of USA.
But monetary policy is not enough. Governments also have to get involved with a more restrictive tax policy geared towards saving energy and promoting renewables.
Specifically, public aid to offset the energy costs of individuals and companies cannot continue to be massive and indiscriminate, but rather temporary and selective, so as to protect the most vulnerable without generating additional inflationary pressures.
The chief economist also stresses that governments must keep markets open and trade flows unimpeded because continuing with protectionist policies would be “a serious setback for many countries, particularly the poorest in the world, and would significantly harm the economy.” global”.