IMF cuts global growth forecasts on Russia-Ukraine war
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An image of destruction in Mariupol (Ukraine), under control of Russian military forces and pro-Russian rebels on April 17, 2022.
Anadolu Agency | Anadolu Agency | Getty Images
According to the International Monetary Fund, Tuesday’s global growth projections were cut by 5% and 6% respectively for 2022-2023. Russia’s unprovoked invasion of UkraineWill “propagate far, far”
This Washington-based institute projects a global GDP rate of 3.6% this year as well as 2023. The difference is a drop in GDP rate of 0.2% and 0.8 percentage points from the January projections.
Pierre-Olivier Gourinchas was an economic counselor at IMF. He stated that the IMF’s most recent World Economic Outlook report had caused a severe decline in global economic prospects.
Officials like NATO’s Jens Sloltenberg noted that Russia invaded Ukraine on February 24, with NATO officials noting that Moscow wants to take control of all its neighbors.
Gourinchas wrote in his blog that the effects of the war would spread widely, increasing price pressures and causing significant policy problems.
The World Bank also cut its global growth expectationsWe estimated earlier in the week that there would be a 3.2% growth rate for 2022, compared to 4.1%.
Ukraine agrees to 35%
United States, Canada and U.K. have placed restrictions on the European Union. several rounds of sanctions targeting Russian banks, oligarchs and energy.
According to the IMF, these sanctions will “have a serious impact on Russia’s economy.” They have estimated that Russia’s GDP would fall by 8.5% in 2018 and 2.3% by 2023.
However, the Fund forecasts a worse outlook for Ukraine’s economy.
The IMF’s latest economic assessment stated, “For 2022 the Ukrainian Economy is Expected to Contract by 35%,” while noting that it was impossible to find a more accurate analysis on the impact of economic shock.
According to the institution, “Even though the war was to be ended soon, the loss and destruction of material capital as well as the flight of citizens will significantly impede economic activity over many years.”
The ‘danger’ of inflation
More broadly, Russia’s attack on Ukraine is a sign of how the world economy has been subject to more supply shocks. It also brings new challenges.
Russia is an important supplier of oil and gas as well as metals and wheat. According to the Fund, Tuesday’s sharp rise in prices has been caused by reduced supply of these commodities.”
The impact of this will be felt by lower income households worldwide and to a longer period of higher inflation than originally anticipated. According to the IMF, the US inflation rate is expected to reach 7.7% and the Euro zone at 5.3% this year.
According to the Fund, “The danger is increasing that inflation expectations drift from central bank inflation targets,” prompting policymakers to take a more aggressive tightening approach.”
The U.S. Federal ReserveThe government expects interest rates to rise six times more in 2022. European Central BankIt confirmed its decision last week to end the asset-purchase program for third quarter.
If inflation is high, however, this tightening of the monetary system could accelerate.
According to the IMF, the latest economic outlook is also concerning the 5,000,000 Ukrainian refugees who have applied for support in neighbouring countries like Poland, Romania, and Moldova. This will result in economic pressures on these countries that they stop supporting them.
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