The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook.
The Outlook projects global growth at a modest three per cent this year before slowing further to just 2.2 per cent in 2023. This is well below the pace of economic growth projected prior to the war and represents around USD 2.8 trillion in foregone global output in 2023.
The war has further pushed up energy prices, especially in Europe, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world due to lingering impacts of the COVID-19 pandemic.
Nigeria’s inflation rate surged to 20.52 per cent in August, the highest since September 2005. The inflation figure rose from 19.64 per cent recorded in July, according to details of the inflation figures published by the National Bureau of Statistics (NBS).
With businesses across many economies passing through higher energy, transportation and labour costs, inflation is reaching levels not seen since the 1980s, forcing central banks to rapidly tighten monetary policy settings faster than anticipated.
The inflation and energy supply shock stemming from the war has led the OECD to revise its previous growth projections downward worldwide. Annual GDP growth is projected to slow to around 0.5 per cent in the United States in 2023, and 0.25 per cent in the euro area, with risks of deeper declines in several European economies during the winter months. Growth in China has also been hit and is expected to drop to a projected 3.2 per cent in 2022. Except for the 2020 pandemic, this will be the lowest growth rate in China since the 1970s.
Inflation is projected to recede gradually through 2023 in most G20 countries as tighter monetary policy takes effect and global growth slows. Headline inflation is projected to ease from 8.2 per cent this year to 6.6 per cent in 2023 in the G20 economies, and fall from 6.2 per cent this year to four per cent in 2023 in the G20 advanced economies.
The OECD points to substantial uncertainty about the economic outlook, with significant downside risks. These include the possibility of further food and energy price spikes, which could push many people into poverty, as well as the possibility of gas shortages as winter progresses in the Northern hemisphere. Reducing energy consumption and diversifying supply sources will be critical to avoid shortages, which would push global energy prices up, damage confidence, and likely worsen financial conditions and require a temporary period of enforced reduction of gas use by businesses.