OECD: World economy GDP will shrink by 1 point and inflation will rise by 2.5

The effects of the war in Ukraine are already being felt at the level of the global economy. After the IMF admitted to lower its forecasts for the global economy, the Organization for Economic Cooperation and Development (OECD) today admitted that the conflict in Ukraine will reduce the growth of the world economy by one percentage point during the first year and increase expected inflation by 2.5 points.

The OECD, in its latest report, published today, says that the impact will be particularly important in Europe, which is highly dependent on Russian gas, electricity, and oil.

According to the OECD, in the Eurozone the conflict will subtract 1.4 points from Gross Domestic Product (GDP) and in the United States about 0.9 points, while the Russian economy will suffer a 10% collapse.

The world may face a "global shortage of raw materials," as Russia and Ukraine are among the world's largest producers of fertilizers and metals such as nickel, titanium, and palladium, OECD Secretary-General Mathias Cormann warned in presenting the study.

An additional risk indicated by the study's authors who do not advance estimates for Ukraine is a complete shutdown of Russian energy exports to the European Union (EU), which could decrease GDP growth by 0.5 points more, with a total increase in inflation of about 3.5 points over pre-war expectations.

To deal with this shock, the organization believes that in the short term many governments will have to cushion rising energy prices and increase food production to compensate for what will no longer come from Russia and Ukraine.

In this context, the OECD indicates that for the costs of public finances to be sustainable and to avoid price distortions, measures should be "selective, well-targeted and temporary," Cormann insisted.

In other words, direct aid to the lowest income families should be given preference over other measures such as general price caps or tax cuts, and should be financed with the exceptional benefits that some companies are getting, the so-called "profits falling from the sky".

The study warns that the economic impact of the war will vary from country to country, but "clearly there will be costs," with a "strong shock" to the supply chain and a "significant impact on confidence," which will have "consequences" on consumers and business decisions.

The OECD, while acknowledging the great uncertainty surrounding the impact of the war, which will depend in part on its duration and policy responses, stresses that the most important consequences are the loss of life and the humanitarian crisis.

Source: Lusa

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