IMF cuts global growth forecasts as Ukraine war, inflation cast shadow on world economy
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The global economic outlook has darkened considerably as the Russian war in Ukraine and sky-high inflation weigh on the still-fragile recovery from the pandemic, the International Monetary Fund warned on Tuesday.
The Washington-based institution said in its latest World Economic Outlook that global domestic gross product will grow by 3.6% this year – a 0.8 percentage point drop from its January estimate. The IMF, which noted that its forecast is marked by "unusually high uncertainty," expects global growth to remain at 3.6% next year, a 0.2 percentage point decline from January. By comparison, the economy grew by 6.1% last year following the brief but extremely severe recession in 2020.
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"Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine," Pierre-Olivier Gourinchas, the IMF chief economist, wrote in a blog post accompanying the report. "This crisis unfolds even as the global economy has not yet fully recovered from the pandemic."
Pedestrians walk past IMF and World Bank spring meetings signs outside the IMF headquarters in Washington on April 3, 2021. (Samuel Corum/Bloomberg via Getty Images / Getty Images)
The Russian invasion of Ukraine on Feb. 24 has cast a shadow over the annual spring meetings of the IMF and the World Bank, which also trimmed its growth forecast this year.
Gourinchas said the war, the worst conflict that Europe has seen in decades, has slowed growth and exacerbated inflation, which he said posed a "clear and present danger" to many countries. The invasion has also intensified supply shocks to the global economy, including disrupting Russian supplies of oil, gas and metals, and Ukrainian exports of corn and wheat.
"Like seismic waves, its effects will propagate far and wide," Gourinchas wrote.
As a result of the war, the IMF expects inflation will remain elevated for much longer: In advanced economies, including the U.S., prices are projected to be up 5.7% this year, compared to 8.7% in emerging markets, a jump of 1.8 and 2.8 percentage points from January's forecast.
Demonstrators protest the invasion of Ukraine outside the Russian embassy in Lisbon, Portugal, Feb. 27, 2022. (AP Photo/Ana Brigida / AP Newsroom)
"Uncertainty around these projections is considerable, well beyond the usual range," Gourinchas said. "Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports."
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Inflation has accelerated and Americans are already facing the hottest inflation in more than 40 years: The Labor Department reported last week that consumer prices soared 8.5% in March from the previous year, the fastest pace since December 1981.
As a result, the Federal Reserve is moving aggressively to tighten monetary policy; the U.S. central bank raised interest rates by a quarter-basis point in March and has signaled that larger, half-point hikes could be appropriate at future meetings.