Global growth in 2023 is forecast to be as weak as in 2009 amid Ukraine conflict

Global economic growth in 2023 is forecast to be as weak as in 2009 during the financial crisis as a result of the Ukraine conflict and its impact on the world economy, according to the Institute of International Finance.

The world economy is projected to grow 1.5 per cent next year, compared to 0.6 per cent in 2009, the IIF’s managing director and chief economist Robin Brooks and economists Jonathan Fortun and Jack Pingle said in a report on Thursday.

However, “true” growth — an annual average growth adjusted for statistical carryover from the previous year — is forecast to be 1.1 per cent in 2023, as compared to 1.3 per cent in 2009 amid the Great Recession that began a year earlier.

The IIF, the association for the global financial services industry, estimates global purchasing power parity-weighted statistical carryover at 0.4 per cent in 2023.

The annual average growth in 2009 was 0.6 per cent with a base effect of -0.7 per cent. The base effect was negative as the Great Recession began in 2008. As a result, “true” global growth in 2009 was 1.3 per cent, the report said

“Adjusting for base effects, we expect growth in 2023 to be as weak as 2009, with weakness radiating out from deep contractions in Russia and Ukraine to the rest of the world economy,” it said.

The Ukraine conflict, which began in late February, has affected global economic growth and led to higher oil prices, with Brent surging close to $140 per barrel in March.

The International Monetary Fund cut its global economic growth forecast for next year, amid the Ukraine conflict, broadening inflation pressures and a slowdown in China, the world’s second-largest economy.

The fund maintained its global economic estimate for this year at 3.2 per cent but downgraded next year's forecast to 2.7 per cent — 0.2 percentage points lower than the July forecast. There is a 25 per cent probability that growth could fall below 2 per cent next year, the IMF said in its World Economic Outlook report released in October.

Ukraine’s economy will contract by 15 per cent next year, while Russia, which is under western sanctions, will shrink by 7 per cent, according to the IIF report.

The eurozone will contract by 2 per cent, after expanding by 2.7 per cent this year, while the US — the world’s largest economy — will grow by 1 per cent. Latin America’s economy is also forecast to grow by 1.2 per cent next year.

India, Asia’s third-largest economy will grow by 6 per cent, while China, the world’s second-largest economy, will expand by 4.6 per cent in 2023, as the country continues to ease Covid-19 curbs amid protests over the stringent pandemic rules.

Japan, the world's third largest economy, is projected to grow 1.5 per cent next year, following a 1.4 per cent expansion this year.

Unlike Ukraine, western carveouts of Russia’s energy exports led to large hard currency inflows there, which resulted in a sharp easing of financial conditions. This helped Moscow to avert a “steeper” GDP decline, according to the report.

“At a global level, our PPP-weighted aggregate shows “true” growth in 2023 to be slightly weaker than in 2009 with China and Latin America the most important growth drivers,” the IIF said.

“The coming global recession will be more severe in “true” growth terms than the great recession.”

The new report comes after the IIF warned in July that the risk of a global recession is “rising sharply” amid a combination of “shocks”, including the impact of the Russia-Ukraine conflict on the eurozone, Covid-19 pandemic-related uncertainty in China and the sharp tightening in US financial conditions.