Russo-Ukrainian War: OECD predicts rise in wheat, fertilizer prices

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From Isaac Anumihe, Abuja

The Organisation for Economic Co-operation and Development (OECD) has predicted that prices of wheat and fertilizer would double because Russia and Ukraine (who are at war)  account for 30 per cent of global wheat exports, more than a quarter of world fertilizer exports and almost 15 per cent of maize exports.

The OECD’s worries about the impact of the war on the world’s poorest people and countries were echoed by the United Nations, which in a separate report estimated that more than 5 per cent of the imports of the poorest countries are composed of goods that have seen price rises since the invasion, compared with just 1 per cent of the imports of rich countries.

The UN calculates that in the years 2018 through 2020, 32 per cent of Africa’s wheat imports came from Russia and another 12 per cent from Ukraine. In Somalia and Benin, all imported wheat during those years came from the countries at war.

So given the likely disruption to energy supplies and the planting of wheat and other grains, these prices are not likely to simmer down.

‘These are not shocks that last a few months,’ the OECD Chief Economist,’ Ms  Laurence Boone said.

The OECD estimates that the eurozone economy will see the growth that is 1.4 percentage points weaker than if the invasion had not taken place, with the U.S. seeing a loss of around 0.9 of a percentage point. In its previous forecasts, the OECD had expected the eurozone economy to grow by 4.3 per cent in 2022, and the U.S. economy to grow by 3.7 per cent.

Boone said that the outlook is highly uncertain, a reason why the OECD had decided to abandon its usual, quarterly attempt to provide a wider range of precise forecasts for coming years.

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The Paris-based research body expects inflation in the eurozone to be 2 percentage points higher than if the war had not started, and inflation in the U.S. to be 1.4 percentage points higher.

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Boone suggested that governments should provide help directly to the poorest households, rather than taking more broad-based measures to ease the impact of price rises through tax cuts or similar measures.

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‘It’s important to shelter people. That would help avoid a wage-price spiral,’ she said

According to Boone,  the greatest economic harm is likely to be felt by Russia and Ukraine, although it is ‘super difficult’ to estimate the scale of the damage suffered by the invaded country.

The OECD assumes that Russian domestic demand will be 15  per cent lower this year than last, with demand in Ukraine down 40 per cent.

Russia’s invasion of Ukraine, according to an OECD report, will be felt by households around the world through higher energy and food prices, with disruptions to trade and fragile confidence contributing to a significant weakening of global economic growth.

It calculates that global economic growth will be 1.1 percentage points lower, and inflation just short of 2½ points higher than if the invasion had not taken place. In late 2021, the OECD forecasted the global economy would grow by 4.5 per cent this year, and consumer prices would rise by 4.2 per cent.

‘The impact on economic growth will be largest for countries with close trade and financial ties to Russia and Ukraine, but people on low incomes around the world will suffer since food and energy account for a larger share of their spending than in richer households,’ the organisation said.

Meanwhile, OECD was started in 1948, after World War II, to run the Marshall Plan to reconstruct Europe. Its goal was to help European governments recognise their economic interdependence. In this way, it was one of the roots of the European Union.

The members include Austria, Australia, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal and Slovak.

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