The double blow of growth and inflation to the global economy from the war in Ukraine will require governments to help consumers with rising energy bills, the west’s leading thinktank has said.
The Paris-based Organisation for Economic Co-operation and Development said it had shaved more than a percentage point off its forecast for world output and raised its inflation estimate by 2.5 percentage points as a result of the Russian invasion.
The OECD had previously expected world output to rise by 4.5% this year, but said the war in eastern Europe would have “numerous significant economic implications”.
In its first comprehensive analysis of the crisis, the thinktank noted that while Russia and Ukraine contributed relatively small amounts to global output, they were big producers and exporters of key food items, minerals and energy.
“The war has already resulted in sizeable economic and financial shocks, particularly in commodity markets, with the prices of oil, gas and wheat soaring.”
The OECD, which has 38 developed country members, said the eurozone would be especially hard hit by the economic fallout from the conflict, with growth 1.4 points lower than expected at just under 3%.
With the war increasing the cost of energy and food, the thinktank said it was also sharply raising its 2022 inflation forecast to about 7.5%. The OECD had already increased its cost of living projections by about 0.5 points to 5% since its last half-yearly economic outlook was published in December 2021.
“In the near term, many governments will need to cushion the blow of higher energy prices, diversify energy sources and increase efficiency wherever possible”, the OECD said.
“The war has underlined the importance of minimising dependence on Russia for key energy imports.”
Laurence Boone, the OECD’s chief economist, said Europe faced an acute refugee crisis, adding that the burden needed to be shared to take the pressure off those countries – Poland and Moldova – taking large numbers of people fleeing the conflict.
“The war is having an impact on the rest of the world through two main economic channels: higher food prices, which will hurt low income and emerging markets especially, and energy prices, which will affect businesses and consumers world wide,” Boone said.
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Ukraine is a major exporter of food, and the OECD said the loss of the country’s entire crop this year would cut supplies of wheat by 12%, maize by almost 10% and other cereals by 8%.
The OECD’s estimates are based on the assumption that the commodity and financial market shocks seen in the first two weeks of the conflict last for at least a year, and include a deep recession in Russia, with output declining by more than 10% and inflation rising by close to 15 percentage points.
“The war in Ukraine has created a new negative supply shock for the world economy, just when some of the supply-chain challenges seen since the beginning of the pandemic appeared to be starting to fade,” the OECD report said.
