The intergovernmental organization now predicts 3% global economic growth for 2022 — a significant revision from the 4.5% it predicted in December — largely because of disruptions from the Russian invasion of Ukraine.
“The economic outlook is pretty bleak,” OECD Deputy Secretary-General and French economist Laurence Boone explained. “As the war continues, it is pushing up inflation and slowing growth. Russia’s aggression comes with a price we’re all paying — disruptions have driven up food and energy prices, which are putting a high burden on all of us, and especially the most vulnerable.”
The OECD slashed predictions for gross domestic product (GDP) growth in most major economies — especially Finland, Italy, France, the United Kingdom, Estonia, and other European nations. The OECD also slashed growth prospects for the United States from 3.7% to 2.5%.
“The new OECD projections show the large and global impact the war is having on inflation, which has already reached 40-year highs in Germany, the United Kingdom and the United States,” the organization said. “A gradual reduction of supply chain and commodity price pressures and the impact of rising interest rates should begin to be felt through 2023, but core inflation is nonetheless projected to remain at or above central bank objectives in many major economies at year-end.”
Earlier this week, the World Bank also cut its 2022 growth forecasts from 4.1% to 2.9% and warned of the “sharpest slowdown in 80 years.” The World Bank compared global economic conditions to those witnessed in the 1970s — including supply-side issues causing inflation to soar and aggressive monetary stimulus in advanced economies.
Although the OECD expects eastern European nations to endure the highest price level increases, the entity also increased inflation forecasts for several developed countries. Predictions for inflation in the United States, for example, rose from 4.4% to 5.9%.
The OECD issued a warning about famine in low-income countries dependent upon Russia and Ukraine for food staples. “With public budgets stretched by two years of the pandemic, these countries could struggle to provide food and energy at affordable rates to their populations, risking famine and social unrest,” the OECD said. “The sharp rise in prices is already undermining purchasing power, which will force lower income households worldwide to cut back on other items to pay for basic energy and food needs.”
Ukraine and Russia, combined, produce roughly 12% of the world’s calories, as well as 30% of the world’s traded wheat. Indeed, the United Nations warned as early as March that Ukraine’s ability to “harvest crops, plant new ones or sustain livestock production” was in jeopardy due to the invasion.
Americans are likewise battling higher food prices amid supply chain bottlenecks. According to a quarterly survey from BMO and Ipsos, 42% of adults “are changing how they shop for groceries,” including “opting for cheaper items, avoiding brand names and buying only the essentials.” The report also revealed that 46% are “either dining out less or consciously spending less when dining out.”
Many Americans are also driving less, canceling gym subscriptions, and passing on summer vacations in light of the high prices, the survey found.