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Russia’s invasion of Ukraine is a major humanitarian and economic shock that is set to derail the global recovery from the Covid-19 pandemic, the Organisation for Economic Co-operation and Development said.
The “severe economic shock will be of “uncertain duration and magnitude”, the Paris-based organisation said, with a twin growth and inflation blow causing the think tank to slash its global growth outlook and raise its inflation forecast.
The OECD, which has 38 developed country members, expects growth of just under 3 per cent in 2022, down more than 1 per cent from its earlier projection of 4.5 per cent, with the war causing “numerous significant economic implications”.
Meanwhile, inflation will rise to about 7.5 per cent, the organisation said, as the soaring cost of energy and food feeds into the economy — a significant uplift on its December cost-of-living expectation of 5 per cent.
Mathias Cormann, Secretary General of the OECD, said the uncertainty the war poses to global growth means the organisation cannot present its usual economic outlook.
“This crisis calls for sensible, well targeted, temporary short-term measures while staying focused on long-term objectives, ensuring the resilience of our global supply chains, ensuring energy, food and digital security, and staying the course on our climate objectives,” he said.
“This is unlikely to be a short-term challenge. We need to prepare ourselves to sustain that humanitarian support to a significantly higher number of people.”
The commodity supply squeeze resulting from the conflict is “exacerbating supply chain disruptions brought on by the pandemic and risks weighing on consumers and firms for a long time”, Mr Cormann added.
Before the outbreak of the war, most key global macroeconomic variables were expected to return to normal over the course of this year and next.
Global growth was on track to return to pre-pandemic rates in 2023 with most OECD nations hitting full employment, inflation converging on levels close to policy objectives and monetary and fiscal policy settings normalising.
However, that has changed, because although Russia and Ukraine are relatively small in output terms, they are large 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 group said.
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A Ukrainian serviceman walks past the vertical tail fin of a Russian Su-34 bomber lying in a damaged building in Kharkiv, Ukraine. AP Photo -
An apartment building damaged after shelling in Kharkiv, Ukraine. AP Photo -
A woman puts her head in her hands as she sits on a cot in a shelter, set up for displaced persons fleeing Ukraine, inside a school gymnasium in Przemysl, Poland. AP Photo -
Belarussian and suspected Russian helicopters on the flight line at Machulishchy Air Base outside Minsk, Belarus. AP Photo -
Children look on as people fleeing Russia's invasion of Ukraine shelter in a school, in Drohobych, Ukraine. Reuters -
Families eat in the shelter. Reuters -
A woman looks out from a building damaged by Russian shelling in Mykolaiv, 100 kilometres away from Odesa, western Ukraine. AFP -
A wounded Ukrainian man waits in the corridor of the central hospital of Mykolaiv. AFP -
An elderly woman is carried in a shopping cart after being rescued from Irpin, on the outskirts of Kyiv, Ukraine. AP -
A woman reacts as a train carrying children from Kyiv's Central Children's Hospital leaves the Ukrainian capital on its way to Lviv. Reuters -
A girl sits in an improvised bomb shelter in Mariupol, Ukraine. AP -
An elderly woman is coated in snow as she sits in a wheelchair after being rescued from Irpin. AP -
Belarusian volunteers take part in military exercises at the Belarusian Company base in Kyiv. AP -
Lessa, left, director of a nursery school turned into a refugee shelter, cries as she hugs Olega, who arrived from Kyiv with her baby, near Lviv. EPA -
Ukrainians pass a damaged bridge as they flee from Irpin. AP -
A man carries an elderly woman as people continue to leave Irpin. AP -
A soldier stands on a barricade made of sandbags in central Odesa, Ukraine. Reuters -
A charred Russian tank and captured tanks in the Sumy region. Reuters -
People rest at a temporary shelter for Ukrainian refugees in Przemysl, Poland. AFP -
Ukraine's ambassador to the Netherlands, Maksym Kononenko, third right, and his wife Tetiana Doroshenko, fourth left, attend a meeting of members of the Ukrainian community with Dutch King Willem-Alexander, third left, and Queen Maxima, second left, to discuss the situation in Ukraine, in The Hague. EPA -
A Ukrainian soldier looks at the destruction after shelling in Ukraine's second-largest city of Kharkiv. AFP -
A refugee holds her dog as they wait for trains to Poland in Lviv, Ukraine. Reuters -
A woman ties ribbons in Ukrainian national flag colours in a girl's hair as people wait at a refugee assistance centre in Prague, Czech Republic. EPA -
A Ukrainian soldier carries an elderly woman crossing the Irpin river on the outskirts of Kyiv. AP -
Lena, who had never left Ukraine before fleeing into Moldova, feeds Dasha, 3, soon after crossing the border. Erin Clare Brown for The National -
Refugees without immediate plans to move further inland can stay the night in tents set up on Moldova's side of the border. Erin Clare Brown for The National -
Tatiana and her son wait for a van that will carry them from the Moldovan border to Chisinau. Erin Clare Brown for The National -
Each night, the Palanca refugee camp in Moldova feeds up to 300 people who arrive with no onward plans. Erin Clare Brown for The National -
People pass a damaged bridge while fleeing the town of Irpin, close to the Ukrainian capital of Kyiv. AP -
A Ukrainian soldier stands guard next to a church in Irpin. EPA -
A firefighter holds the baby of a Ukrainian refugee at the border in Romania. AP -
Ukrainian President Volodymyr Zelenskyy speaks in Kyiv. Reuters -
A Ukrainian soldier at a checkpoint in Kyiv. AP -
Ukrainian activist Ihor Mazur, left, a veteran of the war in the country's east, looks at a night-vision device in Kyiv. AP -
Ambassadors attend a UN Security Council meeting on threats to international security after Russia's invasion of Ukraine, in New York. Reuters -
Ukraine's UN ambassador Sergey Kyslytsya holds a paper with an image of Russia's Foreign Minister Sergey Lavrov as he addresses the Security Council in New York. Reuters -
A road sign put up in support of Mr Zelenskyy outside Russia's embassy in Washington. AFP -
Ukrainian refugees at the train station in Lviv, western Ukraine. EPA -
Lethal and non-lethal Ukrainian aid is loaded on to a plane bound for Poland by Canadian soldiers in Trenton, Ontario. Reuters -
Volunteers carry medical aid and necessities at a train station in Lviv. EPA -
Everton players wear T-shirts in support of Ukraine as they warm up for an English Premier League football match against Tottenham Hotspur. AP -
A residential building damaged by Russian shelling in Chernihiv, Ukraine. Reuters -
A man walks past a checkpoint in heavy snow in Lviv. Getty -
A man fleeing fighting in Irpin waits to cross a river after Russian forces entered the city. Getty -
Soldiers assist Irpin residents underneath a damaged bridge as they flee. Getty -
Ukrainian civilians who volunteered to join the Territorial Defence Forces take part in a training exercise in Odesa after Russia's invasion. Reuters -
Men carry a body to a lorry as people flee from the frontline town of Irpin. EPA -
A Ukrainian police officer runs with a child as the sound of shelling echoes nearby in Irpin. AP -
Parents and children struggle to board a train in Lviv. AP
To help mitigate this, global central banks should focus on fighting inflation and leaving governments to respond with spending to cushion economies from the impact of the war in Ukraine.
This could reduce the negative impact on growth with only a minor extra impetus to inflation.
“In some countries, this could be funded by taxation of windfall gains,” the OECD said.
In terms of the policy and market response, Mr Cormann said the key messages are “that we need to remain cool headed, we need both sensible and pragmatic near-term and sensible longer term actions".
With economies facing a rocky road ahead, monetary policy should remain focused on ensuring well-anchored inflation expectations.
“Most central banks should continue their pre-war plans, with the exception of the most affected economies, where a pause may be needed to fully assess the consequences of the crisis,” the think tank said.
The impact of the war, “if sustained”, would produce “a deep recession in Russia”, the OECD said.
While together Ukraine and Russia represent less than 3 per cent of global trade, said Mr Cormann, and hold less than 2 per cent of the total global foreign direct investment stock, some countries are more exposed than others to the fallout from the war.
The pain would be felt most in Europe, with growth hit by up to 1.4 percentage points in the eurozone as OECD simulations show euro-area growth is most at risk,
Many European governments have already taken action that chimes with its fiscal recommendations, introducing targeted support for firms and households hit by the surge in energy prices.
“We do not yet know how this will fully play out but we do know this will hurt the global recovery and push inflation even higher,” OECD chief economist and Deputy Secretary-General Laurence Boone said. “Government policy has a crucial role to play in re-establishing some of the certainty and security we have lost.”
In the near term, the OECD said many governments will need to cushion the blow of higher energy prices, diversify energy sources and increase efficiency wherever possible.
“For food, higher production in OECD countries, refraining from protectionism and multilateral support for logistics will help the countries most affected by a disruption to supply from Russia and Ukraine,” it said.
“The war has underlined the importance of minimising dependence on Russia for key energy imports.”
It also warned against the risk of a “sharp increase in poverty and hunger”, particularly in developing economies, were supplies of wheat from Russia and Ukraine to be cut off completely, and of the rising cost of supporting refugees fleeing the conflict.
About 3 million people have fled Ukraine with more waves of refugees expected in the weeks ahead.
