Andrea Shalal and David Lawder

WASHINGTON (Reuters] – As Russia’s aggression in Ukraine increases food and energy prices, the International Monetary Fund will reduce its growth forecasts for 2022 and 2023. Kristalina Georgieva warned on Thursday that this was a dangerous time and cautioned that it would be difficult to predict what would happen.

In a speech titled “curtain raiser”, Georgieva announced that the global lender would downgrade its growth outlooks on 143 countries representing 86% global economic output. But, many countries will still experience positive growth. Georgieva spoke in advance of new forecasts due to be published at next week’s IMF/World Bank spring meetings.

Georgieva previously warned of a possible downgrade and said that Russia’s invasion in Ukraine was sending shockwaves around the world, as well as causing a huge setback for countries trying to recover from the COVID-19 pandemic.

Georgieva stated that the root cause of the problems we are facing today is war. He spoke to Washington’s Carnegie Endowment for International Peace. In economic terms, the growth rate is declining and the inflation rate is rising. People’s earnings are falling while their ability to endure hardship is rising in human terms.

The sanctions that were imposed by the West on Russia reflect “a global order severely affected,” she said, warning about a new danger, the fragmentation and disintegration of the world economy into different geopolitical blocs with different trade and technology standards and payment systems.

The war, she said, was also aggravating global food insecurity, as disruptions to wheat and fertilizer supplies from Russia, Ukraine and Belarus are driving up food price and impacting the most vulnerable countries.

Many countries are facing more poverty, hunger and unrest if they don’t take coordinated, urgent action to boost food supply. It was crucial to diversify agricultural production in order to enhance long-term resilience. This was similar to how vaccine production was expanded regionally during the pandemic.

According to the IMF, inflation will continue to be a danger for many countries and remain high for much longer than originally anticipated.

Georgieva has not provided a global growth target, although she previously said it would be lower that the 4.4% IMF projected in January. However, this figure was already down by half a point from its previous forecast, due to the lingering supply disruptions caused the pandemic.

She stated that the outlook had deteriorated significantly since then due to the war and all its consequences. The effects of inflation, financial tightening, and widespread, extensive lockdowns in China — which are causing new bottlenecks within global supply chains — have also been a limiting factor in activity.

THE THREAT of FRAGMENTATION

Georgieva warned against the danger of fragmentation in the global economy, which is the most serious threat to post World War Two’s U.S.-led economic system governed the IMF and the World Bank as well as other institutions that were created after that conflict.

A tectonic shift like this would require expensive adjustment costs. Supply chains, R&D, and production networks would be broken and need to be rebuilt,” she said. These dislocations will be most severe for poor countries and the people who live in them.

This shift has already hampered the global ability to collaborate to end the conflict in Ukraine and COVID-19, and it threatens to derail efforts to tackle climate change.

She called for continued faith in coordinated actions to tackle shared problems like climate change, rapid technological changes and other issues.

“Complexity doesn’t necessarily make impossible. We must remember that we don’t need to be isolated and fragmented,” she stated, noting the fact that after the Cold War ended, the world economy tripled and the poverty rate for around 1.3 billion people has sharply decreased.

Janet Yellen, U.S. Treasury Secretary raised similar concerns Wednesday regarding a “bipolar” global economy. This includes the United States and its democratic allies and China.