The Paris-based Organisation for Economic Cooperation and Development (OECD) has been one of the more optimistic voices in recent economic forecasting. And it still is—but their outlook sounds strained.
The agency expects 3.1% global GDP growth this year, dropping to 2.2% next year and then improving but only to 2.7% in 2024.
For the US, the expectations are 1.8% this year, 0.5% next, and 1.0% in 2024.
“It is true we are not predicting a global recession,” OECD Secretary-General Mathias Cormann said at a news conference according to Fortune. “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.”
“Tighter monetary policy and higher real interest rates, persistently high energy prices, weak real household income growth and declining confidence are all expected to sap growth,” the OECD analysis said. “The United States and Europe are slowing sharply and the major Asian emerging-market economies are expected to account for close to three-quarters of global GDP growth in 2023.”
For the US, that projection is very thin and any uncertainty—the only certainty in economic projections—could easily mean an extended period of economic contraction. A recession.
Energy prices are a particularly thorny issue. According to the OECD, the percentage of global GDP spent on energy at the moment is 17.7%. During the second US oil crisis, the one in 1981, the amount was 17.8%.
“Russia’s war of aggression against Ukraine has provoked a massive energy price shock not seen since the 1970s,” the OECD said. “The increase in energy prices is taking a heavy toll on the world economy, which will worsen if European gas storage runs short. This could force rationing in Europe, hurt countries worldwide as global gas prices are pushed higher. Growth would be lower and prices higher in Europe and worldwide.”
The OECD sees inflation, at least in the US, slowing to 3.52% next year and 2.57% in 2024, given the Federal Reserve’s continued aggressive actions. But the Fed has made clear that it will likely continue more interest rate hikes until inflation seems well tamed.
Next year could be a challenge for CRE, with even higher interest rates than the ones currently pushing many into wondering how they might afford any upcoming refinance without recapitalization.