Economic Outlook, interim report: Economic and Social Impacts and Policy Implications of the War in Ukraine

Fiscal policies to cushion economic impact from Ukraine war

The OECD Economic Outlook Interim Report is a twice-yearly analysis of the major global economic trends and prospects for the next two years. In this occasion is focuses on the potential economic and social consequences of the war. The war is expected to slow the global recovery from the COVID-19 pandemic and further push up inflation worldwide.

Key findings from the report:

  • Prior to the war, a global recovery was underway: Most key global macroeconomic variables were seen as returning to normality over 2022-23 following the COVID-19 pandemic. Last December 2021, the OECD projected global GDP growth of 4.5% in 2022 and 3.2% in 2023. Policy settings were also expected to normalise, with exceptional monetary policy accommodation being progressively removed and emergency fiscal measures, taken in response to the pandemic, phased out.

  • War´s impact in GDP and inflation worldwide: According to the OECD the economic and financial shocks resulted from the war, if sustained for 1 year, could reduce global GDP growth by over 1%, with a deep recession in Russia (10% fail in GDP), and an increase of the global consumer price inflation by approximately 2.5%. European economies would be the hardest hit, and worldwide the main impact from the conflict has to do with the role of Ukraine and Russia as major suppliers in several commodity markets. 

- The OECD warns that a complete cessation of wheat exports from Russia and Ukraine would result not only of economic crises in some countries but also humanitarian disasters, with a sharp increase in poverty and hunger.

  • Fiscal policies will be relevant to cushion the negative economic impacts from the crisis: According to the OECD, well-designed and carefully targeted fiscal support could reduce the negative impact on growth without adding significantly to inflation. In some countries, this could be funded by taxation of windfall gains. Monetary policy should remain focused on ensuring well-anchored inflation expectations according to the OECD and it has limited room for monetary policy maneuver.

  • Other long-term consequences of the war: Pressures for higher spending on defense, potential fragmentation of payment systems or a re-division of the world into blocs separated by barriers that could derail some of the advantages coming from the globalization.

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