OECD assesses impact of war on Europe: one scenario hits Lithuania hardest for energy dependency
The OECD estimates that the war in Ukraine this year will be 1 percent. slowed global economic growth from a previously projected 5.6 percent. growth. And eurozone economies could slow to around 1.4 percent from 4.3 percent in December. carpet.
The organization’s assessment and one of the scenarios is a one-fifth (20%) decrease in energy imports from Russia, this year the economic growth of the EU countries would slow down by about 1%, and Lithuania – the most among all OECD members (2.5%). see Table 1). This assumption is made on the basis of Lithuania’s high dependence on Russian oil imports (2019 data, see Table 2).
However, the economist points out that this assessment only shows the sensitivity of countries to energy imports. Lithuania’s indicator shows that our economy is more dependent on energy resources, therefore it is more sensitive than Europe. However, it is still significant that the country’s economic growth will slow down, as Indrė Genytė-Pikčienė, Chief Economist of INVL Asset Management, explains other alternative energy sources.
Lithuania will feel more
Lukas Savickas, a member of the Democratic faction of the Seimas on behalf of Lithuania, who watched the report, shared his impressions with Delphi. The politician points out that Lithuania singles out all OECD countries as the countries most likely to experience the effects of war.
“In this OECD report, the main economic risk is mainly related to Russia’s energy exports to the EU. Lithuania is singled out as the most potentially influential country in the OECD. We see 2.5 percent. (slowdown – Delphi), compared to other EU members, which would be expected to have an effect of only about 1%, ”comments L. Savickas.
According to the interlocutor, Lithuania was singled out due to its high dependence on imports of Russian energy resources. This is also shown by the table provided by the OECD. 2019 data show that Lithuania imports a much larger share of Russian energy resources than other countries (see schedule at the bottom).
“From what has been presented, I see that the main cross-section is the impact of rising energy and food prices, ie how groups in society, especially lower incomes, would be affected. One of the preconditions why Lithuania can depend on different energy raw materials from Russia. The change in energy prices due to the reduced import of Russian energy to our country, as well as to other countries, has been assessed, ”says L. Savickas.
“The PO also notes that energy prices in Lithuania have an exceptional impact on the lower-income population – the rise in energy and food prices in the EC would mainly affect Estonia, Latvia and Lithuania,” he added.
Economist: Lithuania’s dependence is more bloated
However, Indrė Genytė-Pikčienė, Chief Economist of INVL Asset Management, estimates that Lithuania’s dependence on Russian energy sources is inflated, as the country has alternative sources for all types of energy.
“Based on 2019. data. It is logical that our Orlen Lietuva mainly refined Russian Urals oil, as it is a geographically close supplier, the logistics are more convenient, and it is natural that our plant refined this type of oil. However, it is only that those oils would be abandoned and not refined, because the representatives of Orlen Lietuva also say that our plants can process other types of oil – Arabic and American. alone, this would not be as cost-effective, but we see that this is an atypical circumstance of war, and Russian oil is being abandoned by market players alone.
This dependence of Lithuania is very bloated, because there is a huge player who creates about 1 percent. our country’s GDP. Naturally, those volumes inflate Lithuania’s indicator, but we are very alternative sources for all types of energy. We see a lot of dependence on gas in other countries, a lot of our own liquefied natural gas (LNG) terminal in Lithuania, there is no such dependence, we ensure our own security. This means that we will definitely have gas, and we can certainly assure our neighbors that this dependence is more paper-based than it really is, ”the economist comments.
Appreciate that the recession should be
According to her, the Lithuanian economy will experience a recession if it refuses or reduces the import of Russian energy resources. The interviewee explains that the OECD has assessed only one scenario: if 20% reduce imports of energy carriers as economies in the responding countries.
“This is just one of the scenarios that shows the countries’ sensitivity to energy imports. This is not an indication of how much the economy will shrink, as it is not clear how much energy imports will fall. Lithuanian 2.5 percent. “is a sensitivity indicator that shows that we are a larger economy, more dependent on energy resources and therefore more sensitive than a sensitive Europe,” she said.
“This OECD assessment strongly shows the economies’ dependence on energy sources: a reduction in the supply of energy carriers would lead to a contraction. But since there are healthy alternatives, there is little chance of an economic downturn.
Apparently, this graph illustrates the fact that Lithuania is indeed an energy-intensive economy. We have a relatively large industry in terms of total GDP, and some industries, such as the oil refining or fertilizer industries, are highly energy-intensive, so it is natural that if our resources were depleted, our GDP would be affected. But since there are healthy alternative ways to procure them, there must be such a decline, ”explains I. Genytė-Pikčienė.
The interlocutor adds that the European Central Bank (ECB) has distributed another OECD chart assessing the impact of gas losses on the country’s GDP. Lithuania looks good in it: “The impact on the Lithuanian economy would be even smaller than the average euro area. So we are more resilient to gas than the euro area average. ”
What measures would facilitate the impact on the population
According to politicians, the OECD emphasizes targeted measures for the most vulnerable groups in society.
“In the context of this report, it is clear that the Russian war in Ukraine will have the greatest impact on our economy and therefore we should take very seriously what I recommend to be prepared for this impact on the Lithuanian economy.
We need to look for targeted support measures for the most vulnerable groups in our society, who are likely to be severely affected by rising energy and food prices. The OECD has emphasized the need to find targeted measures for these groups in society. At the same time, we need to find ways to move towards a rapid transition to dependence on Russian gas and oil. A very significant reduction in the dependence of the whole of Europe can be achieved even in the coming years, but significant reforms and changes are taking place for this purpose, ”L. Savickas explains.
The interviewee’s assessment as one of the targeted measures could be heating benefits for a particular target audience, from events and revenue.
“Such an effect is much more precise and is not spread over the whole base, as opposed to the benefits, they are applied to the extent required by the individual human situation,” he says.
What kind of help is Lithuanian business asking for?
Asked about helping business, Savick said he had not made any OECD recommendations, but had heard the main problems from business.
“Business raises various questions – targeted assistance would be the costs of business reorientation, in particular, there are various measures of the Ministry of Economy that can be administered. Business also emphasizes the need to simplify procedures to make processes run more smoothly.
He also stressed that this may require new competencies, not all competencies are found in Lithuania, they would like simpler procedures to attract the necessary qualifications and employees from other countries. “Many measures are being considered, but so far no clear decisions have been heard that would be made in response to business needs,” says the policy.
The interlocutor also points out that these OECD forecasts should not be seen as a call to change the West’s position towards Russia.
“Colleagues need to be assessed objectively and what impact we can expect. In no way, however, can it be inferred from this that one should adjust one’s behavior or the response of the Western world in terms of sanctions. We aim to objectively assess which countries, in which sectors what effects can be expected, and to propose solutions, ”said the Member of the Seimas.
The war will hit food and energy prices the hardest
According to OECD officials, energy and food prices will be hit hardest by the ongoing war.
“The war is affecting the world through two main economic channels: higher food prices, low-income earners and especially emerging markets, and energy prices that will affect everyone and consumers,” said OECD chief economist Laurence Boone.
According to an OECD report, commodity prices in Europe have risen sharply since the start of the war in Ukraine. Russia and Ukraine together account for about a third of world wheat exports and are a major producer of fertilizers and industrial metals such as nickel. Disruptions in the production of wheat, corn and fertilizers could exacerbate the widespread bad crisis and food shortages around the world. Rising metal prices could affect industries starting with the manufacture of aircraft, automobiles and chips.
Russia’s supply of about 16 percent. of the world’s natural gas and 11 percent. Oil and energy prices have jumped, especially in Europe, which is dependent on Russian gas and oil: 27 percent. oil, 41 percent. natural gas and 47 percent. solid fuels are imported from Russia.
Gas prices in Europe are reported to be more than 10 times higher than 10 times higher than 10 times higher than 10 times more than 10 times higher. The price shock will hurt households and disrupt the global supply of goods and services.
The OECD’s chief economist said: “When the global economy was launched after two years of COVID-19 crisis, a brutal and devastating war broke out in Europe. We don’t yet know how it will affect us, but we know it will hurt the global recovery and increase inflation. “
The expert group increased in 2022. global inflation forecast (2.5%) to around 7.5%. Inflation in the euro area and among OECD countries will rise by about 2%. faster than previously forecast.
OECD estimates are based on the assumption that the turmoil in commodity and financial markets observed in the first two weeks of the conflict will last for at least a year and will include a deep economic downturn of more than 10% and inflation of almost 15%.
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