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According to a recent study by the Organisation for Economic Co-operation and Development (OECD), up to $2.8 trillion of global GDP will be lost by 2022 as a result of Russia’s invasion of Ukraine.
The study, titled Paying the Price of War, notes that the global economy is slowing faster than anticipated, prompting the multilateral body to lower its projections for worldwide growth by 2023.
The impact on the supply of agricultural goods, oil, natural gas, and other products such as steel from Ukraine has generated strong pressures on the economies closest to the conflict. The clearest example is the Eurozone, dependent on Russian hydrocarbons, and North Africa, dependent on Ukrainian grain.
OECD foresees little growth in 2023
In 2023, the OECD expects the growth of economies to be much more moderate than in 2022. Most economies, including the Eurozone and the United States, will see timid growth, and some, such as Germany, will fall into recession as a result of natural gas shortages.
Another factor contributing to the OECD’s diminished economic outlook is China’s zero Covid-19 policy, which has come at a significant cost to companies with manufacturing facilities in the country. China, interestingly, is one of the few economies that the OECD anticipates will grow more in 2023 than it did in 2022, as a result of a reduction in Covid-19 cases.
In Latin America, growth prospects remain on the downside in 2023, especially given the continent’s political shift, with governments increasingly aligned with agendas skeptical of free investment and in favor of state intervention in the economy.
The OECD forecasts that inflation, which has raised the cost of living considerably across the world, will ease. However, it will remain high through 2023, especially in countries such as Germany where they face severe restrictions due to natural gas cuts by Russia in response to the EU’s support for Ukraine in the conflict.
2023 will be a difficult year for several Eurozone economies
The economic outlook for Europe looks particularly worrying, as not only Germany, but virtually the entire eastern part of the continent, will suffer from power cuts due to a lack of natural gas. As the OECD report explains, although natural gas reservoirs are 90% full, Europe will have to reduce its gas consumption by up to 10% in the middle of winter to avoid rationing.
Without sufficient natural gas supplies, energy prices in Europe may again come under upward pressure in early 2023. The OECD expects high energy costs to push several countries into recession. Many companies risk shutting down operations because of the rationing that will ensue if the continent fails to reduce its consumption of natural gas, which is needed to power the heating system.
On the US side, the economy is slowing as a result of the Federal Reserve’s (Fed) interest rate hike. Fed Chairman Jerome Powell is increasingly less optimistic about the so-called “landing” the economy will have to contain inflation. Some Fed models anticipate a recession in 2023, as well as a 1 % increase in the unemployment rate.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica