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Inflation in advanced economies to reach 5.7% and 8.7% for the developing nations
The International Monetary Fund (IMF) on Tuesday lowered its global economic outlook for 2022 and 2023 by a nearly full percentage point, saying the financial hit from Russia’s unprovoked invasion of Ukraine will “propagate far and wide.”
In its latest World Economic Outlook report, the institution is projecting a GDP growth of 3.6% for the global economy in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for this year and the following year, respectively, from its forecasts published back in January.
The global lender said, beyond 2023, the growth is expected to decline to about 3.3% over the medium-term.
“Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, economic counselor at the IMF, said in a blog post on Tuesday.
He said that the effects of the war would propagate far and wide, adding to price pressures and aggravating substantial policy challenges.
The World Bank also slashed its global growth expectations on Monday, estimating a growth rate of 3.2% from 4.1% for 2022.
Russia and Ukraine’s economies to contract
The IMF said the economic sanctions on Russian banks, oligarchs, and energy, imposed by the United States, Canada, the United Kingdom, and the European Union United States, Canada, the United Kingdom, and the European Union will have “a severe impact on the Russian economy.”
It is estimated that Russia’s GDP will fall by 8.5% this year and by 2.3% in 2023.
However, the forecast for the Ukrainian economy is even bleaker.
“For 2022, the Ukrainian economy is expected to contract by 35%,” the IMF said in its latest economic assessment while adding that a more precise analysis of the financial hit was “impossible to obtain.”
“Even if the war were to end soon, the loss of life, destruction of physical capital, and flight of citizens will severely impede economic activity for many years to come,” the institution said.
Inflationary pressure on global economy
In a broader view, Russia’s decision to invade Ukraine has intensified disruptions in global supply chains, sending shockwaves through the global economy.
“Russia is a major supplier of oil, gas, and metals, and, together with Ukraine, of wheat and corn. Reduced supplies of these commodities have driven their prices up sharply,” the IMF said, which is expected to hurt lower-income households globally and lead to higher inflation for a more extended period than previously anticipated.
The IMF estimates in 2022, the inflation rate will top 7.7% in the US and 5.3% in the eurozone. Moreover, the price pressure in the advanced economies is estimated to reach 5.7% and 8.7% for the developing nations.
“The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policymakers,” the institution said.
The US Federal Reserve expects to hike interest rates six more times in 2022, and last week, the European Central Bank confirmed that it is ending its asset purchase program in the third quarter to tighten the monetary policy.
Picture Credit: FT
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