Summary
OECD: The global economy has been hit by Russia’s invasion of Ukraine. Global economic growth stalled in the second quarter of 2022
- The global economy has been hit by Russia’s invasion of Ukraine. Global economic growth stalled in the second quarter of 2022, and indicators in many economies now point to an extended period of subdued growth.
- The war has pushed up energy and food prices substantially, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world.
- Global growth is projected to slow from 3% in 2022 to 2¼ per cent in 2023, well below the pace foreseen prior to the war. In 2023, real global incomes could be around USD 2.8 trillion lower than expected a year ago (a shortfall of just over 2% of GDP in PPP terms).
- Annual GDP growth is projected to slow sharply to ½ per cent in the United States in 2023, and ¼ per cent in the euro area, with risks of output declines in several European economies during the winter months. Growth in China is projected to drop to 3.2% this year, amidst COVID-19 shutdowns and property market weakness, but policy support could help growth recover in 2023.
- Inflation has become broad-based in many economies. Tighter monetary policy and easing supply bottlenecks should moderate inflation pressures next year, but elevated energy prices and higher labour costs are likely to slow the pace of decline.
- Headline inflation is projected to ease from 8.2% in 2022 to 6½ per cent in 2023 in the G20 economies, and decline from 6.2% in the G20 advanced economies this year to 4% in 2023.
- Significant uncertainty surrounds the projections. More severe fuel shortages, especially for gas, could reduce growth in Europe by a further 1¼ percentage points in 2023, with global growth lowered by ½ percentage point, and raise European inflation by over 1½ percentage points.
- Further interest rate increases are needed in most major economies to anchor inflation expectations and ensure that inflation pressures are reduced durably.
- Fiscal support is needed to help cushion the impact of high energy costs on households and companies. However, this should be temporary, concentrated on the most vulnerable, preserve incentives to reduce energy consumption and be withdrawn as energy price pressures wane.
- Short-term fiscal actions to cushion living standards should take into account the need to avoid a further persistent stimulus at a time of high inflation and ensure fiscal sustainability.
- Governments need to ensure that the goals of energy security and climate change mitigation are aligned. Efforts to ensure near-term energy security and affordability through fiscal support, supply diversification and lower energy consumption should be accompanied by stronger policy measures to enhance investment in clean technologies and energy efficiency.
- The fallout from the war remains a threat to global food security, particularly if combined with further extreme weather events resulting from climate change. International cooperation is needed to keep agricultural markets open, address emergency needs and strengthen supply.
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