Putin’s 'unprovoked, unjustifiable and illegal war' sends dollar soaring

An electrical board at an exchange office in Istanbul, Turkey, 23 September 2022 - SEDAT SUNA/EPA-EFE/ Shutterstock
An electrical board at an exchange office in Istanbul, Turkey, 23 September 2022 - SEDAT SUNA/EPA-EFE/ Shutterstock

Rampant energy prices, the fallout of the war in Ukraine and China’s zero-Covid policies will drag down the global economy well into next year, top forecasters have warned.

Worldwide GDP will grow by 3pc this year and just 2.2pc in 2023, according to the Organisation for Economic Cooperation and Development. That represents a sharp downgrade to its prior estimate of 2.8pc growth next year.

The dollar surged to fresh highs against world currencies on Monday as concerns about the health of the global economy intensified.

Vladimir Putin and his invasion of Ukraine is to blame for the worsening outlook, the OECD said.

“After bouncing back strongly from the COVID-19 pandemic, a return to a more normal economic situation appeared to be in prospect prior to Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine,” the non-governmental organisation said.

“The effects of the war and the continuing impacts of COVID-19 outbreaks in some parts of the world have dented growth and put additional upward pressure on prices, above all for energy and food.”

The dollar has risen rapidly so far this year amid growing concerns about the global economy, as investors seek safety in the US currency. It climbed another 0.2pc against the euro on Monday, making €1 worth $0.969, and 1.25pc against the pound, taking sterling to $1.076.

Britain will flatline next year, the OECD said, as the economy shrinks in the near future then records no growth at all in 2023 as a whole. The forecast does not take into account recent policy changes announced by the Government last week on energy support for businesses and taxation.

The OECD believes only two major economies are set to do worse that Britain next year: Germany, with a painful annual contraction of 0.7pc, and Russia, which will see its economic output plunge by 4.5pc.

Russia is suffering from the consequences of its own war and the economic sanctions which followed. Its GDP is already diving by 5.5pc this year.

Meanwhile Germany is facing recession as it painfully weans its economy off reliance on cheap gas from Russia.

Eurozone growth as a whole is set to stagnate next year, with an expansion of 0.3pc in 2023. Europe as a whole is heavily exposed to disruption to energy, commodities and food systems as a result of the war in Ukraine.

Even without the war, the world economy was still facing disruption from the pandemic.

China, once a major driver of global growth, will expand by just 3.2pc this year - a cut of 1.2 percentage points on previous projections - and 4.7pc next year, a touch slower than previously thought and still well below the 5.5pc growth target set by the Communist authorities.

The OECD blamed China’s poor performance in part on “Covid-19 shutdowns and property market weakness”.

Governments and central banks face a difficult balancing act to try to help ease households and businesses through the squeeze.

“Further interest rate increases are needed in most major economies to anchor inflation expectations and ensure that inflation pressures are reduced durably,” the OECD said, warning that “high inflation is becoming entrenched” by the series of shocks battering the global economy.

At the same time Governments need to try to make sure their efforts to reduce the cost of living and support businesses do not stoke inflation or unsustainable debts.

“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,” the think tank warned.