The mourning over the global economy was underscored on Tuesday by the International Monetary Fund, which said in its World Economic Outlook that global output is expected to slow this year to 3.6% from 6.1% in 2021. That’s a downgrade from a January forecast of 4.4% growth this year.
“The global economic outlook has been severely damaged, largely due to Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, IMF chief economist, told a press briefing on Tuesday. “This crisis is unfolding as the global economy has yet to fully recover from the pandemic.”
The impact of Russia’s war on the global economy will be a central topic for policymakers gathering in Washington this week for the spring meetings of the IMF and World Bank.
As the meetings began, policymakers debated how to keep the pressure on Russia while keeping economic recovery on track and protecting the world’s poor from rising prices. While some commodity-exporting countries will benefit from a period of rising fuel and food prices, for most economies the disruptions weigh heavily.
“The war has made an already dire situation worse,” Treasury Secretary Janet Yellen said in a speech on Tuesday about rising food insecurity. “Price and supply shocks are already materializing, aggravating global inflationary pressures, creating risks for external balances and undermining the post-pandemic recovery.”
Yellen plans to attend an opening session on Wednesday with Ukraine’s finance minister as the United States seeks to stand with its allies in opposing the Russian invasion, an official said. of the Treasury. However, Yellen will not attend some G-20 sessions, such as those on international financial architecture and sustainable finance, if Russians attend.
Gourinchas said the war was slowing growth and boosting inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian oil, gas and metal supplies, as well as Ukrainian wheat and corn exports, would ripple through commodity markets and the global economy “like seismic waves.”
He acknowledged that the trajectory of the global economy would depend on how the war unfolds and the ultimate extent of the sanctions that the United States and its allies in Europe and Asia have imposed on Russia.
“The uncertainty around these projections is considerable, well beyond the usual range,” Gourinchas said. “Growth could slow further, while inflation could exceed our projections if, for example, sanctions extend to Russian energy exports.”
Ukraine and Russia face the most disastrous economic consequences of the war. The IMF expects the Ukrainian economy to contract by 35% this year, while the Russian economy is expected to contract by 8.5%. Gourinchas noted that Russian authorities have so far managed to contain the collapse of its financial system and avoid bank failures, but that further sanctions targeting Russia’s energy industry could have a significant impact on its economy.
The sweeping sanctions that America and its allies have already imposed on Russia are the main factor contributing to the IMF’s downward revision of the outlook for global growth, Gourinchas said, adding that a tightening of restrictions targeting energy exports Russians would represent an “unfavorable scenario”. this would further slow down production worldwide.
Rising prices around the world show no signs of slowing down, the IMF said, even as supply chain issues ease. He expects inflation to remain high throughout the year, projecting it at 5.7% in advanced economies and 8.7% in emerging markets. Inflation hit 8.5% in the United States last month, the fastest 12-month pace since 1981.
Other international organizations and research groups have also lowered their global growth forecasts. Economists at the Peterson Institute for International Economics, a Washington think tank, expect global growth to decline from 5.8% in 2021 to 3.3% annually in 2022 and 2023.
The World Bank also expressed concern this week about the state of the global economy, warning that the lingering pandemic, COVID-19 lockdowns in China and rising inflation could amplify income inequality and unemployment. poverty rate. It lowered its growth forecast for 2022 to 3.2% from 4.1%.
“I am deeply concerned about developing countries,” World Bank President David Malpass said on Monday. “They face sudden increases in energy, fertilizer and food prices, and the likelihood of interest rate increases. Everyone hits them hard.
According to the Bank for International Settlements, more than half of emerging economies have inflation rates above 7%. And 60% of “advanced economies”, including the United States and the euro zone, have inflation above 5%, the highest share since the 1980s, the bank said.
In Britain, inflation rose to 7% in March, its highest level in 30 years.
An April 12 survey of global investors by BofA Securities found that more than two-thirds were pessimistic about the outlook for global growth in the months ahead.