Bird is laying off almost a quarter of its employees

The world economy is sinking a little more with the war in Ukraine and threatens to sink even deeper, the OECD warns in its latest forecasts, which expect a sharp decline in global growth and a surge in inflation this year.

“A humanitarian crisis is unfolding before our eyes, killing thousands of people, forcing millions of refugees to flee their homes and threatening an economic recovery that was on the way after two years of the pandemic,” alarmed the number two and Chief Economist at the OECD. Laurence Boone, in a text in the preamble to these forecasts entitled “the price of war”.

The Paris-based Organization for Economic Co-operation and Development (OECD), which includes 38 industrialized countries, declined to release detailed forecasts in March amid great uncertainty created by Russia’s invasion of Ukraine three weeks earlier.

She had barely calculated that in a year the war would cost more than one point of global growth and 2.5 points of inflation.

It now forecasts a 3% increase in global GDP in 2022, a level much lower than the previous forecast of 4.5% published last December. “The world will pay a heavy price for Russia’s war against Ukraine,” warns Laurence Boone, specifying at a press conference on Wednesday that “this setback is a direct result of the war.”

Ahead of the OECD, most of the major economic organizations have lowered their forecasts: the World Bank on Tuesday announced growth of 2.9% for this year and the International Monetary Fund reduced its forecast to 3.6% in April.

The war bill will vary wildly by region: the Eurozone should return a meager 2.6% versus 4.3% forecast in December, with Germany slipping to 1.9% (-2.2 points) and France to 2.4 % (-1.8 points). .

The United States should grow 2.5% (vs. 3.7% in December) and China 4.4% (vs. 5.1%).

The UK shows 3.6% (-1.1 points) but stagnates completely at 0% for 2023 versus 2.1% previously expected due to “subdued demand” according to the OECD and strong inflationary pressures.

Barring numerous Western economic sanctions, Russia is expected to suffer a 10% recession.

Inflation forecasts doubled

Inflation will continue to rise. Dubbed one of the spheres of recovery for months, it is cited more than 800 times in the OECD’s 229-page report.

Rarely has the institution doubled its inflation expectation among the organization’s member countries this year to 8.5%, which would take it to an annual high since 1988. Excluding Turkey, however, it is 6% closer.

Inflation, still classified as “temporary” by the OECD in September 2021, has accelerated significantly with the ongoing blockades in supply chains and the rise in energy, food and metal prices after the outbreak of war.

This led to an even smaller slump in fiscal confidence in member countries than during the spring 2020 lockdown, the OECD shows. This inflation “reduces disposable household income (…) and slows down consumption,” concludes Laurence Boone.

Within the fragile regions, “war is sending shockwaves all over Africa and the Middle East,” Ms Boone said, in regions threatened by food prices and shortages, such as Lebanon, Egypt or Tunisia, where households are up to Spend 40% of their income on food and energy, she said.

For countries that can, the OECD advises providing “temporary, timely and targeted” assistance to vulnerable households and businesses, and better international cooperation for fragile states.

The organization expects inflationary pressures to ease over the next year but warns that nothing is certain given the context: “Inflationary pressures may turn out to be stronger than expected”, “uncertainty surrounding these forecasts is high”.

It puts forward the hypotheses of a sudden stop in Russian gas exports to Europe, an even sharper rise in energy prices, or continued disruptions in distribution chains. She fears that a sudden surge in inflation could also lead to major interest rate hikes by the central banks.

From there to the expectation of a global recession? IMF Managing Director Kristalina Georgieva ruled out this hypothesis at the Davos Forum at the end of May. The OECD report points to the risk of a “recession” posing Europe in 2023 from potential shocks to Russia’s energy supplies.

This article was published automatically. Sources: ats/awp/afp

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