Cayman Islands, Caribbeanand International News
Thursday, Jul 18, 2024

IMF cuts global growth forecast over Ukraine war

IMF cuts global growth forecast over Ukraine war

Economic gains made after recovery from Covid pandemic could be erased, says expert

The International Monetary Fund has cut its global growth forecasts because of the war in Ukraine, warning that Russia’s invasion could lead to the fragmentation of the world economy into rival blocs.

In a half-yearly update, the IMF said prospects had worsened “significantly” in the past three months as it reduced its growth estimate for 2022 from 4.4% to 3.6%.

The fund said every member of the G7 group of leading industrialised nations and the bigger developing countries would grow less rapidly this year than previously expected, and there was a strong risk of an even worse outcome.

“In the matter of a few weeks, the world has yet again experienced a major, transformative shock. Just as a durable recovery from the pandemic-induced global economic collapse appeared in sight, the war has created the very real prospect that a large part of the recent gains will be erased,” said Pierre-Olivier Gourinchas, the IMF’s economic counsellor and director of research.

The UK is expected to be the joint-best performer in the G7 this year despite having its growth estimate cut from 4.7% to 3.7%, but is set to be the worst performer next year when the IMF is pencilling in expansion of just 1.2%. Consumer spending is predicted to be weaker than expected as the cost of living crisis bites while tighter financial conditions are expected to cool investment.

The US will suffer the least damage from the war and has had its growth forecast for 2022 shaved by 0.3 points to 3.7%. Germany and Italy, both more exposed to Russia, have had their growth estimates reduced by 1.7 points and 1.5 points respectively, to 2.1% and 2.3%.

Russia is on course for two years of falling output as a result of western sanctions (8.5% this year and 2.3% in 2023), while Ukraine’s economy will shrink by 35% in 2022 and feel the impact of the conflict for years to come, the IMF said in its world economic outlook.

The IMF produces the outlook in April and October, with updates in January and July. Six months ago it was expecting the easing of pandemic pressures to result in global growth of 4.9% this year.

“Global economic prospects have worsened significantly since our last World Economic Outlook forecast in January,” Gourinchas said.

“This crisis unfolds while the global economy was on a mending path but had not yet fully recovered from the Covid pandemic, with a significant divergence between the economic recoveries of advanced economies and emerging market and developing ones. Overall risks to economic prospects have risen sharply and policy trade-offs have become ever more challenging.”

Against a backdrop of soaring inflation fuelled by Vladimir Putin’s war, the Washington-based fund said “decisive actions” to rein in spiralling prices needed to be taken by global central banks. However, it said this process must be clearly communicated to avoid a sudden shift in financial markets.

Publishing its global financial stability report alongside the economic outlook, the IMF warned rates rising further than expected could cause a “sharp decline” in the value of a range of assets. “Financial stability risks have risen on several fronts since the Russian invasion of Ukraine, and they may test the resilience of global financial markets amid huge uncertainties,” it said.

The IMF said a further two percentage points could be shaved off global growth next year in the event the war in Ukraine led to even higher energy prices, entrenched inflation and big losses on financial markets.

Gourinchas said the war had increased the risk of “a more permanent fragmentation of the world economy into geopolitical blocs with distinct technology standards, cross-border payment systems, and reserve currencies.

“Such a tectonic shift would entail high adjustment costs and long-run efficiency losses as supply chains and production networks are reconfigured. It also represents a major challenge to the rules-based framework that has governed international and economic relations for the last 70 years.”

He added: “The economic effects of the war are spreading far and wide … mainly through commodity markets, trade, and financial linkages.

“In many countries, inflation has become a central concern … There is a rising risk that inflation expectations become de-anchored, prompting a more aggressive tightening response from central banks. In emerging market and developing economies, increases in food and fuel prices could significantly increase the risk of social unrest.”

The IMF expects inflation to average 5.7% in advanced economies and 8.7% in emerging market and developing economies this year – 1.8 and 2.8 percentage points higher than projected in January.


Related Articles

Paper straws found to contain long-lasting and potentially toxic chemicals - study
FTX's Bankman-Fried headed for jail after judge revokes bail
Blackrock gets half a trillion dollar deal to rebuild Ukraine
Israel: Unprecedented Civil Disobedience Looms as IDF Reservists Protest Judiciary Reform
America's First New Nuclear Reactor in Nearly Seven Years Begins Operations
Southeast Asia moves closer to economic unity with new regional payments system
Today Hunter Biden’s best friend and business associate, Devon Archer, testified that Joe Biden met in Georgetown with Russian Moscow Mayor's Wife Yelena Baturina who later paid Hunter Biden $3.5 million in so called “consulting fees”
Singapore Carries Out First Execution of a Woman in Two Decades Amid Capital Punishment Debate
Google testing journalism AI. We are doing it already 2 years, and without Google biased propoganda and manipulated censorship
Unlike illegal imigrants coming by boats - US Citizens Will Need Visa To Travel To Europe in 2024
Musk announces Twitter name and logo change to X.com
The politician and the journalist lost control and started fighting on live broadcast.
The future of sports
Unveiling the Black Hole: The Mysterious Fate of EU's Aid to Ukraine
Farewell to a Music Titan: Tony Bennett, Renowned Jazz and Pop Vocalist, Passes Away at 96
Alarming Behavior Among Florida's Sharks Raises Concerns Over Possible Cocaine Exposure
Transgender Exclusion in Miss Italy Stirs Controversy Amidst Changing Global Beauty Pageant Landscape
Joe Biden admitted, in his own words, that he delivered what he promised in exchange for the $10 million bribe he received from the Ukraine Oil Company.
TikTok Takes On Spotify And Apple, Launches Own Music Service
Global Trend: Using Anti-Fake News Laws as Censorship Tools - A Deep Dive into Tunisia's Scenario
Arresting Putin During South African Visit Would Equate to War Declaration, Asserts President Ramaphosa
Hacktivist Collective Anonymous Launches 'Project Disclosure' to Unearth Information on UFOs and ETIs
Typo sends millions of US military emails to Russian ally Mali
Server Arrested For Theft After Refusing To Pay A Table's $100 Restaurant Bill When They Dined & Dashed
The Changing Face of Europe: How Mass Migration is Reshaping the Political Landscape
China Urges EU to Clarify Strategic Partnership Amid Trade Tensions
Europe is boiling: Extreme Weather Conditions Prevail Across the Continent
The Last Pour: Anchor Brewing, America's Pioneer Craft Brewer, Closes After 127 Years
Democracy not: EU's Digital Commissioner Considers Shutting Down Social Media Platforms Amid Social Unrest
Sarah Silverman and Renowned Authors Lodge Copyright Infringement Case Against OpenAI and Meta
Italian Court's Controversial Ruling on Sexual Harassment Ignites Uproar
Why Do Tech Executives Support Kennedy Jr.?
The New York Times Announces Closure of its Sports Section in Favor of The Athletic
BBC Anchor Huw Edwards Hospitalized Amid Child Sex Abuse Allegations, Family Confirms
Florida Attorney General requests Meta CEO's testimony on company's platforms' alleged facilitation of illicit activities
The Distorted Mirror of actual approval ratings: Examining the True Threat to Democracy Beyond the Persona of Putin
40,000 child slaves in Congo are forced to work in cobalt mines so we can drive electric cars.
BBC Personalities Rebuke Accusations Amidst Scandal Involving Teen Exploitation
A Swift Disappointment: Why Is Taylor Swift Bypassing Canada on Her Global Tour?
Historic Moment: Edgars Rinkevics, EU's First Openly Gay Head of State, Takes Office as Latvia's President
Bye bye democracy, human rights, freedom: French Cops Can Now Secretly Activate Phone Cameras, Microphones And GPS To Spy On Citizens
The Poor Man With Money, Mark Zuckerberg, Unveils Twitter Replica with Heavy-Handed Censorship: A New Low in Innovation?
Unilever Plummets in a $2.5 Billion Free Fall, to begin with: A Reckoning for Misuse of Corporate Power Against National Interest
Beyond the Blame Game: The Need for Nuanced Perspectives on America's Complex Reality
Twitter Targets Meta: A Tangle of Trade Secrets and Copycat Culture
The Double-Edged Sword of AI: AI is linked to layoffs in industry that created it
US Sanctions on China's Chip Industry Backfire, Prompting Self-Inflicted Blowback
Meta Copy Twitter with New App, Threads
The New French Revolution
BlackRock Bitcoin ETF Application Refiled, Naming Coinbase as ‘Surveillance-Sharing’ Partner