Record high inflation, a plummeting stock market, aggressive rate hikes, skyrocketing gas and food prices, and an energy crisis in Europe is a lot for one year. And all of this is partly due to Russia’s invasion of Ukraine.
The cost to the world, sometimes referred to as “Putin’s price hike” by President Joe Biden, has been enormous. Now an organization has put a price on the disruption.
Russia’s war in Ukraine will cost the global economy $2.8 trillion in economic output by the end of 2023, the Organization for Economic Co-operation and Development, an international economic and political forum, said on Monday. This figure could be even higher as several European countries are at risk of contracting economic activity as they seek to ration their energy supplies over the winter.
“The world continues to pay a heavy price for Russia’s war of aggression against Ukraine,” said OECD Secretary General Mathias Cormann. said.
Before the war, the OECD expected the world economy to grow by 4.5% in 2022 and 3.2% in 2023. In her latest, revised forecast, she said the global economy is expected to grow by 3% this year and 2.2% next year – meaning that the global economy is slowing more than originally expected – mainly because of the Ukraine -war.
“The global economy has lost momentum this year,” the report says. “With the COVID-19 pandemic making a strong recovery, a return to a more normal economic situation seemed on the cards ahead of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine.”
The report shows that natural gas prices in Europe have more than tripled over the past year and are now 10 times higher than the 2010-2019 average. The OECD forecasts euro-zone economic growth to grow by 0.3% in 2023, 1 .3% lower than previous estimate in June.
“The world, and Europe in particular, is bearing the cost of the war in Ukraine, and many economies are facing a difficult winter,” the report said.
However, the OECD stresses that inflation in most of the world’s largest economies was higher than central bank targets even before the Ukraine war. Nonetheless, the invasion exacerbated any problems arising from the pandemic, such as bottlenecks in supply chains.
The OECD left the door open to revising its forecasts in the future, particularly if energy supply disruptions become more severe. The forecasts are “sensitive to a number of key assumptions, including the absence of further waves of COVID-19 infections, no escalation or widening of the war in Ukraine and the gradual easing of pressure on energy markets in Europe”.
The report continued: “Shocks could reduce growth in European economies by over 1¼ percentage points from baseline in 2023 and increase inflation by over 1½ percentage points. This would plunge many countries into a year-round recession in 2023.”
Such shocks may include natural gas prices rising by 50%, which in turn would increase the prices of products such as fertilizer and oil.
“Outside Europe, the impact of the shocks would be smaller, but there would still be negative impacts from higher inflation on real incomes (except in gas-producing economies) and weaker demand from Europe,” the report says.
The OECD has urged the US and Europe to accelerate their shift from fossil fuels to renewable energy in response to cuts in fossil fuel supplies from Russia, adding that Russia’s invasion of Ukraine has prompted “a heightened awareness” of the link between have brought energy policy and security .
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