The war in Ukraine will reduce global growth by more than one percentage point this year and increase global inflation by 2.5 percentage points, the Organization for Economic Co-operation and Development (OECD) estimates in a report released today, calling on governments react with targeted measures to increase spending.
Well-targeted increases in public spending by OECD countries of 0.5% of GDP could reduce the economic impact of the war by about half without significantly increasing inflation, according to the OECD.
As Europe is heavily dependent on Russian energy imports, the negative impact of the war on the eurozone economy could reach 1.4 percentage points, compared to the US estimate of 0.9.
Although Russia and Ukraine together account for only 2% of world GDP, they have a significant impact on the energy and commodity markets as they are large producers of raw materials used in everything from catalytic converters to automobiles to fertilizers.
Rising energy and commodity prices are putting new pressure on already rising inflation, and central banks need to focus on normalizing monetary policy, although a slower pace would be justified in countries with the highest impact of the war, according to the OECD.
The central banks, the Agency adds, should be ready for the necessary interventions, so that the markets can continue to function in the event of great pressure.
Source: AMPE
Source: Capital
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