Soldiers of the Ukrainian Armed Forces move to their position in the Luhansk region of Ukraine on March 8. (Anatoly Stepanov/AFP/Getty Images)
The International Monetary Fund has lowered its expectations for global economic growth over the next two years because of the Russian invasion of Ukraine, likening the conflict’s impact to an “earthquake”.
“The economic impact of the war is spreading far and wide,” the organization said in its latest outlook released Tuesday.
The IMF now expects the global economy to grow by 3.6% in both 2022 and 2023, a sharp slowdown from 6.1% growth in 2021. The new forecasts reflect downgrades of 0.8 and 0.2 respectively percentage points from its January forecast.
The outlook assumes that the war will remain confined to Ukraine, that further sanctions against Russia will not target the huge energy sector and that the impact of the pandemic will continue to fade.
IMF says conflict will hit Ukraine and Russia hardest. The IMF expects Ukraine’s economy to contract by 35% this year, while Western efforts to punish Russia will cause its economy to contract by 8.5%. However, as the war has pushed up energy and other commodity prices, exacerbated supply chain problems and fueled expectations of more persistent inflation, its impact will be felt almost everywhere.
“The war will severely set back the global recovery, slowing growth and pushing inflation even higher,” the IMF said in its report, emphasizing that the global economy had not yet fully recovered from the coronavirus pandemic when Russia announced in late February invaded Ukraine.
In Europe, which is heavily dependent on Russia for its energy needs, growth is now projected to slow to 2.8% in 2022, down 1.1 percentage points from January.
The United States is comparatively isolated. But weakness in its trading partners, as well as plans by the Federal Reserve to quickly roll back pandemic-era support for the economy and raise interest rates, are weighing on the outlook. The IMF forecasts US growth of 3.7% in 2022 and 2.3% in 2023, down 0.3 percentage points since its last forecast.
While the report notes that “the global economic outlook has deteriorated significantly since the beginning of the year,” it does not forecast a recession, which the IMF normally declares when growth falls to 2.5% or less.
However, due to the unprecedented nature of the shock, the IMF also notes an uncertainty that is “well above normal ranges” around its forecasts. And the risks of an even sharper slowdown combined with persistently high inflation are increasing.