OECD sees lower world growth due to Ukraine war’s ‘hefty price’

PARIS – The OECD has warned that the world economy will pay a “hefty price” for Russia’s inva­sion of Ukraine as it slashed its 2022 growth forecast and pro­jected higher inflation.

The Paris-based organisation, which represents 38 mostly developed countries, is the lat­est institution to predict lower GDP growth due to the conflict, which has sent food and energy prices soaring. In its latest eco­nomic outlook, the Organisa­tion for Economic Co-operation and Development said global gross domestic product would grow by three percent in 2022 — down sharply from the 4.5 percent estimated in December.

The OECD also doubled its forecast for inflation among its members — which range from the United States to Austra­lia, Japan, and Latin American and European nations — to 8.5 percent, its highest level since 1988. “The world is set to pay a hefty price for Russia’s war against Ukraine,” wrote the OECD’s chief economist and deputy secretary-general, Lau­rence Boone, adding that a “hu­manitarian crisis is unfolding before our eyes”. “The extent to which growth will be lower and inflation higher will depend on how the war evolves, but it is clear the poorest will be hit hardest,” Boone said. “The price of this war is high and will need to be shared.” Before the war broke out, the outlook had ap­peared “broadly favourable” for 2022-23, with growth and inflation expected to return to normal after the devastating Covid-19 pandemic, said the OECD. However, “the invasion of Ukraine, along with shut­downs in major cities and ports in China due to the zero-Covid policy, has generated a new set of adverse shocks,” it said.

– FOOD SHORTAGE RISK –

The OECD was supposed to publish its outlook in March, but it delayed its detailed as­sessment until now due to un­certainty over the war. At the time, it said the conflict could cut global GDP growth by “over one percentage point”.

The World Bank revised its own figures on Tuesday, lower­ing its global growth forecast from 4.1 percent to 2.9 percent. The IMF cut its forecast by near­ly one point to 3.6 percent in April. The OECD cut its growth forecast for the United States from 3.7 percent to 2.5 percent and that of China, the world’s second biggest economy, from 5.1 percent to 4.4 percent. The eurozone’s GPD is now seen growing by 2.6 percent instead of 4.3 percent while Britain’s outlook was lowered to 3.6 per­cent from 4.7 percent.

Paris-based organisation is latest institution to predict lower GDP growth due to conflict, which has sent food and energy prices soaring

The OECD noted that com­modity prices had risen, hit­ting real income and spending, “particularly for the most vul­nerable households”. “In many emerging-market economies the risks of food shortages are high given the reliance on ag­ricultural exports from Russia and Ukraine,” it said. The report warned that the “effects of the war in Ukraine may be even greater than assumed”, rais­ing as an example a scenario of Russia cutting gas supplies to Europe. As central banks tighten their monetary policies to counter inflation, the report said sharp increases of inter­est rates could also hit growth more than anticipated.

– COVID RISK –

The Covid pandemic, mean­while, could take another turn for the worse.

“New more aggressive or con­tagious variants may emerge, while the application of zero-Covid policies in large econo­mies like China has the poten­tial to sap global demand and disrupt supply for some time to come,” the OECD said. Faced with these challenges, govern­ments needed to protect the most vulnerable from the eco­nomic shockwaves, it added.

In the short term, “tempo­rary, timely and well-targeted” fiscal measures would help the poorest households, the OECD said. Over the medium- and long-term, governments would have to invest more in clean en­ergy and defence spending. “The world is already paying the price for Russia’s aggression,” wrote Boone. “The choices made by policymakers and citizens will be crucial to determining how that price will be distributed across people and countries.”

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