In its latest World Economic Outlook report, the IMF stated that the war was expected to slow growth and further increase inflation, but noted that its forecasts were made during a period of “extraordinarily high uncertainty”.
In the report, it was stated that both the additional sanctions on Russia’s energy sector and the escalation of the war, as well as a sharper-than-anticipated slowdown in the Chinese economy and the re-igniting of the pandemic could further slow economic growth. It was pointed out that this situation would increase inflation and that there was concern that rising prices would trigger social unrest.
The IMF lowered its global economic growth forecast for the second time this year and reported that it expects global growth to be 3.6 percent in 2022 and 2023. This is 0.8 points in the IMF’s January forecast; that is, a 0.2 percent decrease. It is thought that this has a direct effect on the reflection of the Ukrainian war on the economies of Russia and Ukraine and the world economy.
According to the IMF, global growth is expected to decrease by 3.3 percent in the medium term. Between 2004 and 2013, the global growth rate in the medium term is 4.1 percent; In 2021, it was 6.1 percent.
‘WAR IN UKRAINE LOWER THE ECONOMIC GROWTH ESTIMATE’
IMF Chief Economist Pierre-Olivier Gourinchas stated that the global economic outlook has deteriorated sharply, largely due to Russia’s invasion of Ukraine.
The war has exacerbated already rising inflation in many countries due to imbalances in supply and demand associated with the pandemic, according to the report. Recent quarantines due to rising COVID-19 cases in China are expected to cause new bottlenecks in global supply chains.
According to the IMF, the invasion of Ukraine, which Russia considers a special military operation, caused a major humanitarian crisis in eastern Europe, and 5 million people fled from Ukraine to neighboring countries.
Both Russia and Ukraine are expected to experience a major contraction in their economies due to the war.
“RUSSIA’S ECONOMIC PRODUCTION WILL DECREASE BY CLOSE TO 17 PERCENT”
Gourinchas stated that the increase in the West’s sanctions against Russia due to the Ukraine war and targeting the energy sector will cause Russia’s economic output to decrease by close to 17 percent until 2023.
Gourinchas stated that the IMF predicts that Russia’s Gross Domestic Product (GDP) will decrease by 8.5 percent in 2022.
The IMF chief economist pointed out that the sanctions already have a significant impact on the Russian economy, and if they are increased in the future, this impact will be even greater.
Gourinchas also warned that the depreciation of the currencies of countries close to Ukraine and Russia may cause turmoil in these countries.
The IMF, on the other hand, reduced the economic growth forecast of the European Union, which is dependent on Russia in the field of energy, by 1.1 percent.
Gourinchas said, “The war has added a new supply chain shock to the global economy in recent years. “Like seismic waves, its effects will spread increasingly in commodity markets, trade and financial connections,” he said.
According to the report, the decrease in oil, natural gas and metal supplied from Russia, and wheat and corn produced by Ukraine and Russia led to a rapid increase in prices in Europe, the Caucasus, Central Asia, the Middle East, North Africa and Sub-Saharan Africa. However, this situation was reflected in all households across the world beyond these regions.
”PANDEMIC WILL LEAVE A PERMANENT TRACE”
The IMF lowered its medium-term economic outlook for all groups except commodity exporters, who benefited from the rise in energy and food prices. In the report, it is stated that it will take longer for developed economies to return to pre-pandemic production trends, the gap between developed and developing economies will continue, and the pandemic will leave a “permanent trace”.
The IMF stated that inflation is expected to remain high for a longer period of time due to commodity price increases caused by the war, and warned that increasing supply-demand imbalances could worsen the situation.
The IMF forecasts 5.7 percent for advanced economies in 2022; to 8.7 percent for emerging markets and emerging economies. These figures are 1.8 points from the January forecast; ie 2.8 percent more.
Gourinchas warned that inflation remains a clear and present threat to many countries.
‘ECONOMY DIVIDED BY SYSTEMS WITH DIFFERENT STANDARDS CAN BE DISASTER’
Gourinchas said that the world is on the way to become a more multipolar place, considering the emerging markets in the global economy. He warned, however, that the division of the global economy into competing systems with different standards would be disastrous.
Gourinchas said that a controlled transition to a more polarized world would be a more preferable outcome as it would preserve the gains made by globalization.
“According to one scenario, there will be blocks of divided, different standards that do not trade much with each other. This would be a disaster for the global economy,” said Gourinchas, adding that this is a longer-term risk.
Gourinchas noted that the fact that inflation in the USA is rising above the 2 percent target of the Central Bank may require stronger measures in the future, making it more urgent and necessary for the FED to accelerate the rate hike cycle.