OECD lowers GDP forecast on Ukraine war and China’s zero-Covid policy

The Organization for Economic Co-operation and Development has become the latest international organization to lower its global growth forecast this year.

The Organization for Economic Co-operation and Development estimates that global GDP will reach 3% in 2022 – 1.5 percentage points lower than forecasts made in December.

“The invasion of Ukraine, along with the shutdowns in China’s major cities and ports due to the coronavirus-free policy, has generated a new set of adverse shocks,” the Paris-based organization said in its latest economic forecast on Wednesday.

Russia’s invasion of Ukraine has huge repercussions for the global economy, but China’s zero-Covid policy is also a drag on global growth due to the country’s importance in international supply chains and aggregate consumption.

The World Bank said on Tuesday that it also turned more negative regarding global growth prospects. The institution said global gross domestic product will reach 2.9% this year – an estimate lower than its forecast of 4.1% in January.

The OECD said in its report on Wednesday that the downgrade, in part, “reflects deep recessions in Russia and Ukraine.”

“But growth is set to be much weaker than expected in most economies, especially in Europe, where a ban on oil and coal imports from Russia has been included in the 2023 outlook,” she added.

The European Union moved in late May to impose an oil embargo on Russia, having agreed the previous month to halt coal purchases from the country. The bloc was heavily dependent on Russian fossil fuels, and cutting off some of these supplies overnight would have a major economic impact.

However, the eurozone, the area of ​​19 countries that share the euro, and the United States are not much different in terms of economic outlook. The OECD said the former will grow 2.6% this year and the US will expand 2.5%.

The global macro picture is darkening for emerging economies, particularly because they are expected to be hit the hardest by food shortages.

“In many emerging market economies, the risk of food shortages is high given the dependence on agricultural exports from Russia and Ukraine,” the OECD said. China is expected to grow 4.4% this year, India 6.9% and Brazil a marginal 0.6%.