The war in Ukraine is already a colossal price for the global economy

Clouds are gathering over the global economy. After two long years of a pandemic the war in Ukraine will most likely cost a point of planetary growth in a year if its impact on energy and financial markets is prolonged, the OECD warned in a report on Thursday, it could push inflation up another 2.5 points. “The role of Russia and Ukraine in the global economy is weak”, states the OECD, quantifying this weight at 2% of world GDP, as well as the share of these two states in world trade.

During a recent meeting with reporters, Natixis economist and banking consultant Patrick Artus spoke about the war economy. “There are deficits, shortages, serious supply problems, inflation in the war economy. […] The impact on the purchasing power of the humblest is monstrous.” economist warned.

The war in Ukraine is already hurting the development of France

Important influence of Russia and Ukraine on the world economy

However, these two countries have a “significant impact on the global economy” due to their weight in many commodities: they account for 30% of world wheat exports, 20% of corn, mineral fertilizers and natural gas, and 11% of oil, according to estimates. OECD.

If the surge in prices continues for a year after the start of the conflict, then global growth could fall by one point and inflation increase by another 2.5 points, the institution estimates.

Its general secretary, Matthias Kormann, told a press conference on Thursday that “the economic turmoil is massive and must continue into the future.”

However, “the economic consequences of the conflict are highly uncertain and will depend on the duration of the war and the response of states,” the institution writes in its report. Faced with uncertainty, the OECD has changed its traditional publication of annual global forecasts in favor of assessing the impact of the war on the economy.

“This conflict will reverberate throughout the world, and its effects will be felt not only this year, but at least next year. Russia and Ukraine account for 30% of world wheat exports. Ukrainian farmers have not yet sold their last year’s harvest. Black Sea supplies are disrupted, and more importantly, Ukrainian farmers are not yet sowing. In addition, Russia and Belarus are producers of ammonia and potassium, which are the constituents of “fertilizer,” the European Development Bank’s chief economist told AFP (EBRD), Beata Javorczyk.

Europe at the forefront

Not surprisingly, Europe will be the region most affected by the economic impact of the Russian invasion, the international organization adds, due to its close economic and energy ties with Russia, especially with regard to states bordering Moscow or Kiev.

As for wheat, which is massively exported by Moscow and Kiev, the potential complete cessation of exports from the two countries will lead to “an increased risk of economic crises in some countries, as well as humanitarian catastrophes with a sharp increase in poverty and hunger,” the institution warns.

Among the measures recommended in the face of the crisis, the OECD recommends “targeted” fiscal assistance to help the sectors hardest hit by the price hike, which could be financed, in part, by “taxing windfall gains in some countries.”

International organizations sound the alarm

Major international economic bodies such as the EBRD, the IMF and the World Bank warned on Friday of the “enormous” consequences of the Russian invasion of Ukraine for the global economy.

In a joint statement, they say they are “horrified and deeply concerned” and indicate they met on Thursday to discuss his impact and collective response to the conflict. Signatories, which also include the European Investment Bank (EIB), note that in addition to “the devastating humanitarian catastrophe in Ukraine, the war is undermining livelihoods in the region and beyond.”

This reduces the supply of energy, food, raises prices, “damages the post-pandemic recovery of the planet.”

“The entire global economy will feel the effects of slowing growth, disruptions in trade, and the poorest and most vulnerable will suffer the most,” signatories fear. In particular, countries neighboring Ukraine will be hit by disruptions to trade and supply chains and face waves of refugees.”

Financial markets will also face uncertainty that will weigh on asset prices, tighten financial conditions and could even “spur capital outflows from emerging markets.”

The signatories recall the actions already taken: a €2 billion aid package from the EBRD that covers energy and nuclear security, a €668 million allocation to the EIB, a $1.4 billion emergency aid from the IMF and $925 million from the World Bank.

(with agencies)