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OECD: World economy will suffer heavy consequences due to conflict in Ukraine

Photo: Reuters.

At the same time, the OECD reduced its economic growth forecast for 2022 and raised inflation forecast.

The OECD is headquartered in Paris and represents 38 countries, most of which are developed countries. In its latest economic outlook, the OECD downgraded its forecast for global Gross Domestic Product (GDP) growth as the impact of the conflict sent energy and food prices soaring. Accordingly, this organization forecasts that global GDP will grow by 3% in 2022, down sharply from 4.5% made in the forecast in December 2021. In addition, the OECD also doubled its inflation forecast for the group of 38 member countries to 8.5%, marking the highest level since 1988.

Laurence Boone, chief economist and deputy secretary-general of the OECD, said the world would suffer heavily due to the impact of the conflict in Ukraine, and warned of a looming humanitarian crisis. The extent to which growth slows and inflation rises will depend on the course of the conflict, but it is certain that the poorest countries will suffer the most. She said that the consequences of conflict will be severe and countries need to join hands to share.

Before the conflict broke out, the economic outlook was generally positive in 2022 and 2023, in which GDP growth and inflation were both forecast to return to normal levels after the impact of the COVID-19 pandemic. . However, the conflict combined with the lockdown measures in key cities and ports in China, the world’s second-largest economy, has resulted in shocks that have reversed the situation.

OECD: The world economy will suffer heavy consequences due to the conflict in Ukraine - Photo 1.

The new report was due to have been released by the OECD in March, but the organization delayed publishing the detailed assessment because of potential uncertainties related to the conflict situation. At that time, the OECD estimated that global GDP growth could fall by more than 1 percentage point compared to the most recent report.

In its latest report, the OECD lowered its forecast for US economic growth from 3.7% to 2.5%, while its forecast for China’s economic growth also decreased from 5.1% to 4.4%. In addition, the euro area economy (Eurozone) also only achieved 2.6% growth instead of 4.3% in the report released in December.

The OECD noted that consumer prices have continuously increased in recent years, affecting real income and spending, especially for the most vulnerable households. In many emerging economies, the risk of food shortages is high due to their dependence on agricultural products imported from Russia and Ukraine.

The report warns that the effects of the conflict in Ukraine could be even more severe than expected, in some scenarios such as Russia cutting off gas supplies to Europe. In addition, when central banks tightened monetary policies to cope with inflation, interest rates rose sharply and also affected growth prospects more than estimated. The OECD is also concerned that the COVID-19 pandemic may not be over but will get worse. If more dangerous, faster-spreading variants emerge, which continue to affect some major economies like China, it will negatively impact worldwide demand and disrupt supply.

Faced with these challenges, the OECD calls on governments to prioritize protecting the most vulnerable groups. In the short term, temporary, timely and focused fiscal measures will help the poorest households. In the medium to long term, governments should invest more in clean energy and defense spending.

Before the OECD, on June 7, the World Bank (WB) also adjusted its indicators, thereby lowering its forecast for global GDP growth from 4.1% to 2.9%. Similarly, in April, the International Monetary Fund (IMF) lowered its economic growth forecast by about 1 percentage point to 3.6%.

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