Because of Russia’s invasion of Ukraine, the International Monetary Fund has lowered its projections for global economic growth over the next two years, equating the conflict’s rippling effects to a “earthquake.”
“The war’s economic impacts are spreading far and wide,” the group warned in its most recent prognosis, which was released on Tuesday.
The IMF now forecasts that the global economy would grow by 3.6 percent in both 2022 and 2023, down from 6.1 percent in 2021. The revised projections are downgrades of 0.8 and 0.2 percentage points from its January forecasts, respectively.
This week, the World Bank reduced its global growth projection. In 2022, the global economy is expected to grow by 3.2 percent, according to the IMF.
The IMF’s forecast assumes that the conflict in Ukraine will be contained, that more sanctions against Russia would not target its massive energy sector, and that the pandemic’s impacts will wane.
Unsurprisingly, Ukraine and Russia will be the worst hurt by the war. Ukraine’s GDP is expected to fall by 35 percent this year, according to the IMF, while Russia’s economy is expected to drop by 8.5 percent as a result of Western sanctions.
However, the war’s impacts will be felt practically everywhere since it has created a surge in the price of gasoline and other commodities, increasing supply chain difficulties and fuelling predictions for more permanent inflation.
“The conflict would further stall global recovery, reducing GDP and rising inflation,” the IMF stated, pointing out that the global economy had not yet recovered from the coronavirus outbreak when Russia invaded Ukraine in late February.
Growth in Europe, which is largely reliant on Russia for energy, is now predicted to fall to 2.8 percent in 2022, down 1.1 percentage points from January.
In comparison, the United States is rather safe. However, the future is clouded by weakening among its trade partners, as well as the Federal Reserve’s intentions to fast withdraw pandemic-era economic stimulus and hike interest rates. The IMF predicts 3.7 percent growth in 2022 and 2.3 percent growth in 2023, down 0.3 percentage points from its previous prediction.
Storm clouds are also forming over China, with the IMF projecting 4.4 percent growth in 2022, significantly below Beijing’s declared aim of 5.5 percent. Lockdowns aimed at limiting the spread of Covid-19, effects from the Ukraine crisis, and issues in the property sector have all affected the world’s second-largest economy.
While the study notes that “global economic prospects have deteriorated markedly” since the beginning of the year, it does not foresee a recession, which the IMF defines as growth of less than 2.5 percent.