Russia's war in Ukraine is causing a significant negative effect on the global economy and is pushing inflation higher and for longer, Mathias Cormann, Secretary-General of the Organization for Economic Co-operation and Development (OECD), told CNN, commenting on the organization's latest economic outlook released this week.
The OECD does not expect a recession in Europe due to the war that sent energy prices sky-high, but the group has made a significant downward revision to economic growth, including in Europe, Cormann said.
The cost of the EU embargo on Russian oil imports on itself would reduce economic growth by half a percentage point in 2023 and push up inflation, he added.
This OECD projection, however, assumes there is no supply response from other oil-producing countries.
"OPEC and other countries could substitute the supply of Russian oil if they so choose and certainly we would very much urge them to do so," Cormann told CNN.
The OECD's latest Economic Outlook projects global growth to slow sharply to around 3% this year and 2.8% in 2023, well below the recovery projected in the previous Economic Outlook last December. Six months ago, OECD expected global growth for this year at 4.46%.
"Many of the hardest-hit countries are in Europe, which is highly exposed to the war through energy imports and refugee flows," OECD said.
"Countries worldwide are being hit by higher commodity prices, which add to inflationary pressures and curb real incomes and spending, dampening the recovery," OECD's Cormann commented.
All economists and international organizations have revised down their economic growth projections since Russia invaded Ukraine at the end of February. In April, the International Monetary Fund (IMF) said that global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.
The World Bank said this week the war has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation, raising the risk of stagflation. The World Bank now sees global economic growth at 2.9% in 2022, significantly lower than 4.1% that was anticipated in January.
"Higher energy prices will lower real incomes, raise production costs, tighten financial conditions, and constrain macroeconomic policy especially in energy-importing countries," the World Bank said.
By Charles Kennedy for Oilprice.com
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