As the year 2022 comes to a close and 2023 begins, there is growing concern about the global economy, which is on the verge of a recession. The Russian invasion of Ukraine and the resurgence of a new strain of COVID-19 (Omicron) in China have only exacerbated the problem. According to the Organisation for Economic Cooperation and Development (OECD), global growth is expected to slow to a 2.2% pace in 2023, down from 3.1% this year, before rebounding modestly in 2024. The report states that the leading economies of the world are sliding into a recession, as the global energy and inflation crises triggered by Russia’s invasion of Ukraine have cut growth by more than previously anticipated. This means that higher inflation and slower growth are the harsh consequences of Russia’s war in Ukraine for the global economy.
The International Monetary Fund (IMF) has also issued a bleak assessment, stating that the global economy is headed for “stormy waters.” The IMF has downgraded its global growth projections for next year and warned of a severe worldwide recession if policymakers fail to effectively address inflation. “The worst is yet to come, and for many people 2023 will feel like a recession,” the IMF report said. While the report stated that the world will not fully descend into a recession, it acknowledged that the combination of high energy and food costs, rising interest rates, and growing government debt to pay for the fallout of these issues will create fragile prospects for the global economy over the next two years.
The ongoing war in Ukraine has also dampened the prospects of a post-pandemic economic recovery for emerging and developing economies in the Europe and Central Asia region, according to the World Bank’s Economic Update for the region. The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. Economic activity in the euro area, the largest economic partner for emerging and developing economies (EMDEs) in Europe and Central Asia, has significantly declined in the second half of 2022 due to distressed supply chains, increased financial strains, and decreases in consumer and business confidence. The most damaging effects of the invasion, however, are the soaring energy prices resulting from large reductions in Russian energy supply. As a result of the war, Russia is expected to experience a 30-year economic setback. The war in Ukraine has also resulted in significant loss of human capital, destruction of agricultural trading infrastructure, significant damages to productive capacity, and a reduction in private consumption of more than a third compared to pre-war levels.
The recent surge in COVID-19 cases in China, the world’s second-largest economy, representing about 18% of global GDP, has once again raised alarm bells about the global economy. The resurgence of the virus has caused China’s economic growth to slow to 4.0% from 4.3%. All countries around the world will feel the impact of the economic slowdown, including India, although the situation may improve if Russia ends the war in Ukraine and China succeeds in controlling the spread of the virus.