OECD Warns Of ‘Famine’ As World ‘Pays Price’ Of Putin’s War

“A humanitarian crisis is unfolding before our eyes, leaving thousands dead, forcing millions of refugees to flee their homes and threatening a recovery that was underway after two years of the pandemic,” Laurence Boone, OECD Chief Economist and Deputy Secretary, lamented, in a new editorial.

On Wednesday, the organization delivered sharp cuts to its outlook for the global economy. Global growth will be 3% this year, the new forecasts suggested. Six months ago, the OECD expected a 4.5% global expansion. Growth will be 2.8% in 2023, according to the new projections.

Upgrades were few, downgrades many. The figure (below) shows the country breakdown.

The dour projections came a day after the World Bank cut its own outlook, citing “considerable” stagflation risks. “Even if a global recession is averted, the pain of stagflation could persist for several years, unless major supply increases are set in motion,” David Malpass said Tuesday. He too cited Russia’s invasion of Ukraine, and warned that “several years of above-average inflation and below-average growth are now likely.”

This situation admits of no ambiguity and little in the way of nuance. Vladimir Putin’s decision to invade Ukraine is set to deal a devastating blow to a world still struggling to extricate itself from the worst public health crisis in a century. There are almost no winners, and Russia is among the biggest losers.

Thanks in no small part to the Kremlin’s formidable (I’d call it “world class,” but that has a positive connotation) propaganda machine, untold scores of voters in Western nations seem at least partially convinced that the Russian people are somehow better off for this disaster due to the country’s current account surplus and, relatedly, that the world might benefit from the dawning of a “new order” defined by multipolarity, regionalization and the demise of dollar dominance. None of that is true.

As the figure (below) makes abundantly clear, nearly everyone is set to suffer from a marked downshift in growth. The projection for the Russian economy (a 10% contraction) is generally consistent with other forecasts, although some of the more dire projections were revised recently. Even if you’re inexplicably inclined to sympathize with the Kremlin’s “resilient” narrative, note that a contraction half that size (so, a 5% contraction) would be a decidedly bad outcome.

The Saudi economy may expand at more than double the rate seen in 2021 and triple last year’s pace in 2023. In fact, the 9% expansion the Kingdom could enjoy next year would be the largest among G20 nations by a country mile.

Needless to say, the inflation outlook has worsened dramatically compared to December. “The war in Ukraine has quashed hopes for a quick end to rising inflation from COVID-19 related supply bottlenecks seen across the global economy during 2021 and early 2022,” the OECD said.

The figure (below) shows the inflation revisions, by country, versus six months ago.

For OECD nations, inflation is seen at 9% in 2022, double what the organization previously projected. Boone warned that elevated inflation is “eroding households’ real disposable income and living standards, and in turn lowering consumption.”

In developing nations, and especially frontier economies, the situation is much worse than that. The OECD didn’t mince words. “There is high risk of a food crisis,” they warned, noting that some low-income countries “are highly dependent on Russia and Ukraine for basic food staples.” It’s possible, the group said, that parts of the world will experience a “famine” without action.

A few days ago, I suggested there was no use trying to talk around the risks associated with the curtailment of grain exports from Ukraine. The Kremlin has sought to downplay the significance of the country’s crops and some experts suggested recently there’s not actually a shortage of certain key foodstuffs. My argument is that if prices are too high and logistics too challenging, poor countries will starve regardless.

As it turns out, the OECD generally agrees with that assessment. “Today, the world is producing enough cereals to feed everyone, but prices are very high and the risk is that this production will not reach those who need it most,” Boone wrote, imploring the world not to repeat “the flaws of global vaccine distribution.”

With apologies, she’s wasting her breath. Of course we’ll repeat those mistakes. We repeat all of our mistakes. It’s what we do, and it’s why our species will almost surely cease to exist within 200 years.

Scarcely anyone reads the outlook pieces published by the OECD and the IMF, and the majority of the people who do don’t internalize the message. After all, if you have time to spend an hour of your day perusing a lengthy economic outlook and parsing the accompanying data, chances are your life circumstances are such that the warnings contained therein don’t apply to you.