Global recession closing in as war extends past autumn
The extended war in Ukraine has cut growth forecasts further, and the world economy is dangerously close to slipping into recession, the policy group of the developed world—the Organisation for Economic Co-operation and Development (OECD)—has warned. In retaliation to the West’s economic sanctions, Russia has cut back on gas supplies more than was expected. With the over-dependency of heavy industry and home heating on Russian gas and the costs spiralling as supplies vanish, Germany, Italy, and the UK may enter a long recession. OECD has cut the global growth forecast to 2.2% in 2023 from the earlier 2.8% in June. The global economy needs to grow by at least 4% to keep up with the rising population. With the Ukraine war being fought in its backyard, the eurozone will be the worst hit by the global slowdown. The 19-nation bloc’s growth is expected to slip to just 0.3% in 2023, from 3.1% this year.
The more robust economies are also taking it on the chin. Germany’s economy will shrink by 0.7% next year, down from a June estimate of 1.7% growth. China will drop to 3.2% this year, the lowest since 1970, and the US will slow from 1.5% growth this year to only 0.5% for 2023. Central banks of most developed countries have warned of a spate of interest hikes to cool demand and drag back inflation. Though there are few options to tackle the crisis, the World Bank has warned that competitive rate hikes would push the global economy faster into recession.
These are dangerous signals for the man on the street in India and elsewhere. Slower growth and continued inflation mean eroding family incomes. The global slowdown will simultaneously lower demand for Indian goods and services and hit export earnings. The war, which has blunted India’s recovery too, will mean a significantly lower 1.3% GDP growth and 2.3% fall in income growth, World Bank officials warned in April. The negative impact may be greater with the Ukraine invasion extending into autumn. On the other hand, India has the opportunity to ride out the crisis better than most. It is substantially ‘decoupled’ from global headwinds—we are not dependent on export-led growth, and international crude prices are moving southwards, close to $80 a barrel. India’s internal demand has always been strong, which will be key in the coming months.