“The outlook for the global economy has taken a serious setback, largely because of Russia’s invasion of Ukraine,” IMF chief economist Pierre-Olivier Gourinchas said on Tuesday. In its new forecast, the IMF only expects global growth of 3.6% this year. That’s 0.8 percentage points less than forecast in January.
The IMF expects growth in the euro zone to be 1.1 percentage points lower from 2.8%. In Germany, gross domestic product (GDP) is expected to grow by just 2.1 percent – a downgrade from the January forecast by a staggering 1.7 percentage points.
Aggravated by the wave of CoV in China
“This crisis is happening even though the global economy has not yet fully recovered from the pandemic,” said Gourinchas. Many countries are struggling with high inflation, which is why a tightening of monetary policy is imminent. Disruptions to global supply chains continued – although recent CoV lockdowns in China could exacerbate these problems again.
AP/The Yomiuri Shimbun/Hiroto Sekiguchi Ukraine has been bombed for many years, and the global economy is suffering
War ‘nullifies’ recovery
The IMF had already lowered its global growth forecast by 0.5 percentage point to 4.4% in January as a result of the omicron wave of the corona pandemic. “Just when a lasting recovery from the pandemic was in sight, war broke out, potentially undoing recent gains,” explained Gourinchas in a blog post accompanying the new economic forecast.
The latest reduction in the global economic forecast by 0.8 percentage point is mainly due to the weaker outlook for Russia and the European Union. Russia faces a deep recession as a result of tough Western sanctions, accounting for around 0.3 percentage point of the downgrade. Another 0.2 percentage points is due to the darker prospects in Europe “from the indirect effects of the war”. According to the IMF, only the economies of the main commodity exporters currently have a more positive outlook in the face of rising prices in 2022.
For Austria this year only 2.6 percent
For Austria, the IMF forecasts economic output growth of 2.6% this year and a real GDP increase of 3.0% next year. In March, WIFO still assumed 3.9% growth for 2022 and 2.0% for 2023 – the IHS of 3.6% this year and 2.3% of GDP more in 2023. In the previous year, GDP increased by 5%.
Prognosis with a high degree of uncertainty
According to the IMF, the new economic forecast is associated with an unusually high degree of uncertainty. “Growth could slow further, while inflation could exceed our forecasts – for example, if sanctions are extended to Russia’s energy exports,” said Gourinchas. Dangerous variants of the corona virus that would undermine vaccination protection can also lead to production lockdowns and distortions.
The inflation rate is expected to remain high for longer than previously assumed, mainly because of the war. This year, the IMF forecasts an inflation rate of 5.7 percent in industrialized countries, ie 1.8 percentage points more than forecast in January. In emerging and developing countries, the inflation rate is expected to average 8.7%, an increase of 2.8 percentage points.
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What to do against inflation?
High commodity prices drive inflation
Commodity prices are an important driver of the inflation rate. “Russia is a major supplier of oil, gas and metals and, along with Ukraine, of wheat and corn. The reduction in the supply of these commodities raised their prices sharply”, explained Gourinchas. The IMF has made it clear that rising gasoline and food prices will primarily affect low-income households around the world.
Price increases “can also significantly increase the likelihood of social unrest in poorer countries,” he said. Aid organizations warn that countries in the Middle East and Africa in particular could be severely affected.
Russian economy collapses
According to the IMF forecast, the Russian economy is expected to collapse by 8.5 percent this year, down 11.3 percentage points from January. Other forecasts, such as those from the World Bank, anticipate an even deeper recession. The IMF expects a dramatic recession for Ukraine – the economy is expected to shrink 35% because of the war. However, due to the ongoing fighting, economic forecasts for Ukraine are associated with a particularly high level of uncertainty.