Springfield News-Sun

Forecast: High interest rates, inflation to slow world growth

- By Paul Wiseman and David Mchugh

Hobbled by high interest rates, punishing inflation and Russia’s war against Ukraine, the world economy is expected to eke out only modest growth this year and to expand even more tepidly in 2023.

That was the sobering forecast issued Tuesday by the Paris-based Organizati­on for Economic Cooperatio­n and Developmen­t. In the OECD’S estimation, the world economy will grow just 3.1% this year, down sharply from a robust 5.9% in 2021.

Next year, the OECD predicts, would be even worse: The internatio­nal economy would expand only 2.2%.

“It is true we are not predicting a global recession,” OECD Secretary-general Mathias Cormann said at a news conference. “But this is a very, very challengin­g outlook, and I don’t think that anyone will take great comfort from the projection of 2.2% global growth.”

The OECD, made up of 38 member countries, works to promote internatio­nal trade and prosperity and issues periodic reports. Figures showed fully 18% of economic output in member countries being spent on energy after Russia’s invasion of Ukraine helped drive up prices for oil and natural gas. That has confronted the world with an energy crisis on the scale of the two historic energy price spikes in the 1970s that also slowed growth and fueled inflation.

Inflation — largely fueled by high energy prices — “has become broad-based and persistent,” Cormann said, while “real household incomes across many countries have weakened despite support measures government­s have been rolling out.”

In its latest forecast, OECD predicts that the U.S. Federal Reserve’s aggressive drive to tame inflation with higher interest rates — it’s raised its benchmark rate six times this year — will grind the U.S. economy to a nearhalt. It expects the United States, the world’s largest economy, to grow just 1.8% this year (down drasticall­y from 5.9% in 2021), 0.5% in 2023 and 1% in 2024.

That grim outlook is widely shared. Most economists expect the United States to enter at least a mild recession next year, though the OECD did not predict one.

The reportsees U.S. inflation, though decelerati­ng, to remain well above the Fed’s 2% annual target into 2024.

The OECD’S forecast for the 19 European countries that share the euro currency, which are enduring an energy crisis from Russia’s war, is hardly brighter. The organizati­on expects the eurozone to collective­ly manage just 0.5% growth next year before accelerati­ng slightly to 1.4% in 2024.

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