The seal of the International Monetary Fund (IMF) in Washington DC, January 2022. OLIVIER DOULIERY / AFP
Rising inflation and falling global growth. The International Monetary Fund (IMF) on Tuesday April 19 lowered its global growth forecast to 3.6% for 2022, down 0.8 points from January. A revision justified by the war in Ukraine, the sanctions against Russia and the lockdown imposed in China to contain the Covid-19 pandemic.
The Washington-based institution also expects inflation to be higher and longer than expected. The war in Ukraine will disrupt supply chains, which have struggled to recover from the disorganization of the past two years associated with factory closures, rising ocean freight prices and port congestion. This new unrest will mainly affect the wheat trade (of which Ukraine and Russia provide 30% of the world supply) and corn, and will increase commodity prices. “The magnitude of these changes depends not only on the decline in exports due to the conflict and sanctions, but also on the elasticity of global supply and demand,” analyzes the IMF, which believes that “other countries'” reserves are lighter can be used for oil than for gas.
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Eurozone countries are among those most affected by the economic shock of the war in Ukraine due to their proximity: consumer prices there are expected to rise by 12.6% in 2022, at levels comparable to those in South America or the Middle East East is comparable, where GDP growth has been revised sharply down to 2.8%, down 1.1 points from January forecasts.
“Seismic Waves”
In comparison, growth in the United States is revised down by just 0.3 percentage points, mainly due to tightening monetary policy and a slowdown in activity from its economic partners. The economic effects of war are spreading far and wide – like seismic waves emanating from the epicenter of an earthquake – mainly through commodity markets, trade and financial flows, writes the IMF’s new chief economist, Pierre-Olivier Gourinchas, in his introduction to the forecasts.
Tighter financing conditions will expose vulnerabilities for sovereign and private borrowers, the IMF warns
The “seismic waves” can be all the more devastating when the international financial situation is fragile. “The tightening of financing conditions will expose the vulnerabilities of sovereign and private borrowers,” warns the IMF. The war in Ukraine complicates the work of central banks. If they raise interest rates too much in the major developed economies, they could trigger capital flight from emerging markets and lead to a financial crisis. And they could also interfere with activity recovery.
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