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IMF sees bleak prospects for global economy

Relevance up to 23:00 2022-04-20 UTC–4

The situation in Ukraine has severely set back global economic prospects and accelerated inflation, the latest outlook by the International Monetary Fund said.

The IMF has revised its projection for global growth downward to 3.6% from previously forecast 4.4% due to geopolitical tensions in Ukraine and sanctions against Russia.

The organization sees the global economy increase by 3.3% after 2023.

The war is expected to reduce GDP of Russia and Ukraine by 8.5% and 35% respectively. Furthermore, the European Union would be hit by indirect effects of the conflict – its growth forecast was cut to 2.8%, down from 3.9% forecasted earlier.

The IMF has also increased its 2022 inflation projections to 5.7% for developed countries and 8.7% for developing countries.

The ongoing events could result in significant policy shifts and trigger more aggressive monetary tightening by central banks worldwide, the IMF report warned.

“The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policymakers. Furthermore, increases in food and fuel prices may also significantly increase the prospect of social unrest in poorer countries,” it noted.

Due to the Fed tightening cycle, the US economy is projected to rise by only 3.7% in 2022, which is below the earlier forecast of 4%. The IMF expects the Chinese economy to grow by 4.4% in 2022, compared to a 4.8% increase projected earlier.

The revised outlook assumes the war would be limited to Ukraine and Russia, and that sanctions against Russia would not be expanded much further than previously announced.

However, if the situation continues to deteriorate and Russian energy exports are sanctioned, it could weigh down on global economic growth even further. In this scenario, EU GDP and global GDP would be at least 3% and 2% below the current outlook, respectively.

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