Much more economic risks
IMF lowers growth forecast significantly
4/19/2022, 4:31 p.m
Lower growth rates, sometimes severe recessions and high inflation: the economic prospects are anything but rosy, according to the International Monetary Fund. Finally, the Russian war in Ukraine also has devastating economic consequences.
The International Monetary Fund (IMF) lowers its forecast for the global economy because of the war in Ukraine. “Overall, the economic risks have increased significantly,” said IMF economist Pierre-Oliver Gourinchas. The global economy had not fully recovered from the coronavirus pandemic before the Russian attack on Ukraine.
In Europe in particular, the IMF now expects lower growth rates and severe recessions in Russia and Ukraine. The war is also likely to fuel the already high inflation for a longer period of time. According to the IMF, the global economy will grow by 3.6 percent in 2022 and 2023. In 2021 it was 6.1 percent. Compared to the estimates in January, the IMF has lowered its forecast for 2022 by a whopping 0.8 points and for 2023 by 0.2 points.
The West has imposed extensive sanctions on Russia, and further measures such as an oil boycott are being discussed. Russia’s economy is likely to collapse by 8.5 percent in 2022 and shrink again by 2.3 percent in 2023. In 2021 it had increased by 4.7 percent. A recession of at least ten percent is expected for Ukraine this year.
Russia plays a leading role internationally, especially in energy and raw materials, such as oil, gas and metals. Like Ukraine, Russia is also a major exporter of wheat and grain. Because of the war and the sanctions, prices are already rising significantly, which according to the IMF will primarily affect poorer countries. Many countries should actually reduce their debt, which has skyrocketed during the pandemic, but at the same time mobilize funds for refugees and help poor households with high food and energy prices.
Concern about inflation – even in China less growth
Contrary to what was initially thought, inflation is proving to be much more persistent. The IMF expects a rate of 5.7 percent in industrialized countries and 8.7 percent in emerging and developing countries this year. The situation has deteriorated significantly since January – and the IMF does not rule out the possibility that it could deteriorate significantly again. The central banks must now tighten their monetary policy, which has often been loose for a long time.
“Inflation has become a clear and present threat for many countries,” said IMF economist Gourinchas. In the USA and some European countries it is at its highest level for more than 40 years. The frequent and severe corona lockdowns in Chinese metropolises such as Shanghai are also slowing down the global economy. This could increase the supply chain problems of many companies.
For China – the second largest economy in the world after the USA – the IMF predicts growth rates of only 4.4 and 5.1 percent this year and next. For comparison: in 2021 it was still 8.1 percent. In addition to China, Germany will also feel the disruption in trade. According to the IMF, the European export champion will only grow by 2.1 percent in 2022, and then by 2.7 percent in 2023. This reduced the previous estimate for 2022 by 1.7 points, one of the highest values worldwide. For 2023, however, the forecast was raised slightly.