Targeted increases in government spending in OECD countries on the order of 0.5% of GDP could reduce the economic impact of the war by about half, she added
Targeted increases in government spending in OECD countries on the order of 0.5% of GDP could reduce the economic impact of the war by about half, she added
The Ukraine crisis could hurt global growth by more than a percentage point this year and increase inflation by two and a half percentage points, the OECD estimated on Thursday, calling for targeted increases in government spending in response.
Targeted increases in government spending by OECD countries on the order of 0.5% of GDP could cut the economic impact of the war by about half without significantly increasing inflation, the Organization for Economic Co-operation and Development said.
With Europe heavily dependent on Russian energy imports, the war’s negative impact on the eurozone economy could be as much as 1.4%, while it would be about 0.9% in the United States, the OECD estimated in an analysis of the economy consequences of the war.
Despite accounting for just 2% of global GDP, Russia and Ukraine have an outsized impact on energy and commodity markets as major producers of commodities used in everything from catalytic converters for cars to fertilizers.
As energy and commodity price spikes put fresh pressure on already rising inflation, the OECD said central banks should focus on normalizing monetary policy, although a slower pace would be warranted in countries where the economic fallout from the war is worst.
It added that central banks should stand ready to intervene as needed to keep financial markets functioning when major tensions emerge.
Faced with rising energy and food costs, many governments have issued handouts to consumers and businesses, with some also introducing price controls or cutting fees and taxes.
The OECD said governments should ensure that such measures are temporary and well-targeted, and suggested some might consider financing the additional spending by taxing deadweight profits.
