War in Ukraine to cost global economy $2.8 trillion, OECD estimates

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Russia’s war in Ukraine is expected to cost the global economy $2.8 trillion in lost output by the end of 2023, according to the Organization for Economic Co-operation and Development (OECD).

The estimate by the Paris-based group of advanced economies exposes the magnitude of the economic impact of the invasion of Ukraine by Russian forces about seven months ago, in the continent’s worst military conflict since World War II.

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Russia’s attack triggered a spike in energy prices, which weakened household spending and sapped business confidence, particularly in Europe.

The conflict has disrupted supply chains, caused shortages of food and other essentials, and rocked global financial markets.

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Western governments fear that Russia’s recent decision to call up reservists and make preparations to annex more parts of Ukrainian territory could prolong the war for months, perhaps years, fueling uncertainties already weighing on the global economy.

“We are paying a high price for the war,” said OECD interim chief economist Álvaro Santos Pereira.

In a report published this Monday (26), the OECD predicts that the global economy will grow 3% this year and 2.2% next. Before the war, the projections were for advances of 4.5% in 2022 and 3.2% in 2023.

The difference between the estimates means that the conflict and its aftermath will cost the world the equivalent of the economic output generated by France over those two years.

The OECD projects that the euro zone will expand by just 0.3% in 2023, with a contraction of 0.7% in Germany, the region’s largest economy.

In June, the entity expected to see gains of 1.6% in the euro zone next year and 1.7% in Germany.

Still in the document, the OECD also warns that Europe’s economy could suffer even more if energy prices rise again and a severe winter generates rationing.

In the case of the US, the OECD lowered its growth forecast next year from 1.2% to 0.5%, but stressed that a stronger slowdown is possible if domestic inflation does not moderate at as fast a pace as the Federal Reserve ( Fed, the US central bank) wants.

The OECD expects China to recover modestly in 2023, after the slowdown caused this year by lockdowns related to the Covid-19 pandemic.

In June, the entity predicted a 4.4% expansion of the Chinese economy in 2022, but now expects an increase of only 3.2%. For 2023, it projects growth of 4.7%.

Brazil

In relation to Brazil, the OECD forecasts an advance of 2.5% of the economy this year and a much more contained gain in 2023, of only 0.8%.

Source: CNN Brasil

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