The International Monetary Fund (IMF) said Tuesday that the global economic recovery will “slow significantly” this year due to the Russian invasion of Ukraine.
The IMF not only downgraded growth prospects in Eastern European countries, but warned that countries around the world will be affected by the disruption to commodities markets as a result of the war.
The international body now expects global GDP, a measure of economic growth, to rise 3.6% in 2022 (a downgrade from January’s projection of 4.4%) and another 3.6% in 2023 (also a downgrade from the last projection of 3.8%).
“This crisis unfolds while the global economy was on a mending path but had not yet fully recovered from the COVID-19 pandemic,” said IMF Economic Counsellor Pierre-Olivier Gourinchas.
Russia saw the largest downgrade in the IMF report, with the country’s economy now expected to contract by 8.5% this year (compared to the 2.8% growth it had projected prior to the invasion). Western sanctions on the country have cut off trade in and out of Russia, and other measures have largely disconnected the Russian central bank and private banks from the global financial system.
But the global economy is likely to feel the ripple effects of higher prices due to Russia’s importance as an energy and metals exporter to the global economy, alongside Ukraine’s normal contribution of wheat and corn. The IMF says supply disruptions in both countries will likely exacerbate the already high inflation being observed in countries like the United States.
“Even prior to the war, inflation had surged in many economies because of soaring commodity prices and pandemic-induced supply-demand imbalances,” Gourinchas noted Tuesday morning.
U.S. and China face downgrades
Price pressures remain the top story for economic growth in the U.S., where the IMF is projecting GDP to grow by 3.7% this year (a downgrade from the 4.0% it forecast in January). Although the IMF described U.S. exposure to Russia as “limited,” the outlook factors in a more aggressive path of rate hikes from the Federal Reserve.
High inflation — at rates not seen since the 1980s — is spurring central bank officials to support larger and consecutive interest rate increases this year.
The IMF also called attention to the lingering risk of COVID-related disruptions. China’s strict zero-COVID policy has led to lockdowns in major economic hubs like Shanghai, leading the IMF to downgrade growth prospects for the world’s second largest economy to 4.4% this year (compared to 4.8% in its January forecasts).
The economic projections come as the IMF hosts its spring meetings alongside the World Bank Group. A major focus of the meetings will be on ending the war in Ukraine, as well as addressing the food insecurity in poorer countries that rely on the grains that Russia and Ukraine export.
“The high cost of war has crippled and continues to cripple so many countries,” IMF Managing Director Kristalina Georgieva said last week.
