The Organization for Economic Co-operation and Development warns on Thursday that the current geopolitical crisis i.e., Russia’s war in Ukraine will hamper commerce and make global growth sluggish.
According to the organization, the impact of the Ukraine war could result in “deeper recession” in Russia and a 2.5 percent surge in global prices.
The organization, however, has suggested that government spending and taxation management might be able to mitigate some of the damage.
The chief economist of Organization for Economic Co-operation and Development, Laurance Boone said that “just as the world economy appeared to be emerging from two years of the COVID -19 crisis, a brutal and devastating war has broken out in Europe.”
Despite making up less than 2 percent of the global GDP, Russia and Ukraine produce certain commodities such as catalytic converters, fertilizer, etc. For instance, Russia supplies 27% of the European Union’s crude oil imports and 41% of the natural gas imports.
Furthermore, as Russia and Ukraine together export a significant proportion of the world’s wheat. Thus, disruption in the supply chains of such products is a growing concern since countries like Lebanon, etc., relies on such affordable wheat exports. It also raises the risk of hunger and food insecurity across the globe.
“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,” he added.
The price of energy is set to increase further, adding to the already rising inflation. In light of these facts, the OECD has recommended that central banks normalize their monetary policies. Added on, it has advised the governments to focus on the “targeted fiscal response.”
The OECD is urging governments to lighten up on the burden, likely by using windfall taxes to redistribute funds from energy producers to consumers.
According to estimates, 3 million people have fled Ukraine, with more waves of refugees expected in the coming weeks. In the past, refugees have sought refuge in neighboring countries. Therefore, the organization calls for strengthening European Union solidarity to manage the current crisis.