IMF warns Russia-Ukraine war will slow economic growth, increase inflation

The International Monetary Fund (IMF) has said that global economic growth has been severely impacted by the war between Russia and Ukraine. The IMF noted that the global economy has not fully recovered from the COVID-19 pandemic and some countries were facing inflation even before the war. The IMF, in a blog, stated that in comparison to the January forecast, the projection for global growth has been revised downwards to 3.6 % in both 2022 and 2023, which indicates the direct impact of the war on Ukraine and sanctions on Ukraine, "with both countries projected to experience steep contractions."  The IMF has warned that the war will slow the growth of the economy and increase inflation.

According to the IMF, the growth outlook for the European Union has been revised downward by 1.1 percentage points due to the indirect effects of the war and the economic risks have witnessed a sharp increase and policy tradeoffs have become more challenging. The IMF, in the blog, pointed out that the war has impacted the supply of commodities and will have its effects on commodity markets and trade.

According to IMF, the reduction in supplies of these commodities has led to a sharp increase in prices. The IMF, in the report, stated that the commodity importers in Europe, the Caucasus and Central Asia, the Middle East and North Africa, and sub-Saharan Africa have been the most affected and the rise in food and fuel price will impact the lower-income households globally. 

"Inflation has become a clear and present danger for many countries. Even prior to the war, it surged on the back of soaring commodity prices and supply-demand imbalances," the IMF said in the blog. 

"We now project inflation will remain elevated for much longer. In the United States and some European countries, it has reached its highest level in more than 40 years, in the context of tight labour markets," the IMF noted. 

War causes more permanent fragmentation of the world economy: IMF

The International Monetary Fund noted that the war between Russia and Ukraine causes an increase in the risk of "more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies." It noted that the shift would lead to efficiency losses, increase volatility and present a challenge to the rules-based framework.

The IMF highlighted that policymakers need to ensure that the global financial safety net continues to function effectively. According to IMF, some countries need to ensure appropriate liquidity support to tide over short-term refinancing problems while others need comprehensive sovereign debt restructuring. The IMF has made the predictions about the economy as the war between Russia and Ukraine continues for more than 70 days. 

(Image: AP)