Almost all countries are expected to grow more slowly in 2022-23 due to the ongoing Russia-Ukraine war, according to a recent report by the Organization for Economic Co-operation and Development (OECD).
With the ongoing Russia-Ukraine war, the OECD recently cut its global growth estimates to 3 percent in 2022 from 4.5 percent last year.
In 2023, global growth is estimated to decline further to 2.75%.
Current inflation in OECD countries in 2022 is 9 percent, double the previous forecast.  The agency said that with the ongoing humanitarian crisis, high inflation could remain in rich countries and create food shortages for the poorest.  He called for global cooperation to prevent a food crisis by avoiding mistakes similar to those that led to inequality in the distribution of vaccines.
“The cost of this war is high and we must share it,” said Laurence Boone, the OECD chief economist.
The report said that if the war continues to escalate, European economies that rely heavily on Russian fuel could deteriorate because alternative energy sources may not be enough or easy to boost.
“Governments also need to play a role in supporting those who are most vulnerable to rising food and energy inflation,” Ms Boone said.


SO WHERE IS CANADA? 
Canada’s economy has largely recovered from the pandemic, but the OECD report said the Bank of Canada should continue to raise policy rates and shrink its balance sheet in order to return to its inflation target.
Along with revenues from high resource prices, much of the recovery, according to the report, is due to its limited trade ties with economies hit hard by the war in Ukraine.
Current inflation in Canada is 6.8 percent – the highest since 1991 – but the country could follow the same path of the US Federal Reserve raising interest rates last week, the highest since 1994.
The OECD expects the Bank of Canada to move towards a faster policy tightening so that domestic production capacity is not strained by growing demand.
The Bank of Canada has raised interest rates to reduce the effects of inflation.
In a recent speech in Montreal, Bank of Canada Deputy Governor Toni Gravelle said, “The sharp recovery in global demand for goods, along with pandemic-related constraints and some weather-related events, has created the perfect storm”.
With growing demand, the federal and provincial governments will have to focus on strong revenue sources to reduce public debt, while targeting temporary income support for households facing cost-of-living pressures, the report said.
In a recent Financial System Review, the Bank of Canada reported that the share of indebted households had increased.
“In Canada, rising household debt levels and high house prices remain two key interrelated vulnerabilities,” the bank said in its annual review of the financial system.


INCREASE IN THE POLICY RATE 
Following the easing of restraint measures in late January, Canada has seen large production gains in contact-intensive services and strong contributions from resources, construction and manufacturing.
However, the report warns of supply chain disruptions, exacerbated by labor shortages and high inflation.  Rising food and energy prices are already reducing the purchasing power of the average Canadian household and will negatively affect private spending, even when savings rates return to more normal levels, according to the OECD.
The OECD said more rate hikes by the Bank of Canada could help ease price pressures and “bring monetary policy to a neutral environment, where it neither stimulates nor burdens the economy.”
According to the OECD, Canada’s policy rate is projected to rise to 2.5 percent by early 2023. In the event of continued inflation, the agency has forecast an additional rate hike.
In June, a second 50 basis point increase by the Bank of Canada raised the benchmark interest rate to 1.5%.
“We are taking these big steps because inflation has been persistently high, the economy is overheating and the risk of consolidating rising inflation has increased,” said Bank of Canada Deputy Governor Paul Beaudry.


STRONG GROWTH FOR CONTINUATION WITHIN EXTERNAL SHOCKS 
The OECD predicts that Canada’s real GDP will grow by 3.8 percent in 2022 and said the country could withstand the economic shocks of the Russia-Ukraine war, as it has limited trade ties with hard-hit economies.
The OECD said most economies are relatively cramped and now face labor shortages with a sharp increase in job vacancies.  Recent data from Statistics Canada show that job vacancies rose to 957,500 in the first quarter, the highest quarterly number ever recorded.
The pandemic has led to huge reductions in international migration, which has contributed to labor shortages in some countries.
For Canada, the OECD said higher immigration to the country would help reduce those labor shortages and wage pressures in limited supply industries.