The head of the International Monetary Fund has warned that the global inflationary shock caused by Russia’s war in Ukraine and the ongoing Covid pandemic will lead to lower economic growth this year and next.
Kristalina Georgieva, the IMF’s managing director, said the Washington-based fund would downgrade its global growth forecasts for 2022 and 2023 as a result of Vladimir Putin’s invasion pushing up the price of food, energy and other commodities around the world this year.
“We are facing a crisis on top of a crisis,” she said in a speech before the IMF’s spring meeting next week.
Saying that the world faced a “clear and present danger” from high inflation for the first time in many years, she added: “We will be projecting a further downgrade in global growth for both 2022 and 2023.”
The IMF would cut its forecasts for 143 countries around the world, representing 86% of global GDP, she said.
Russia’s invasion of Ukraine in late February sent shockwaves throughout the global economy, fuelling the highest rates of inflation in four decades in advanced economies amid concerns over oil and gas supplies.
The two countries together provide 28% of global wheat exports, while Russia and Belarus supply 40% of potash, a crucial fertiliser. Grain and corn prices have soared as a consequence of the conflict, stoking concerns over the impact for poorer countries dependent on imports.
Georgieva said the war was a “massive setback for the global recovery” from Covid, while warning the pandemic was far from over and continued to be a major risk for international trade and prosperity.
In January, the IMF cut its global growth forecast to 4.4% for 2022 as the Omicron variant weighed on activity across the world, but the head of the fund said this would be scaled back further in new forecasts to be published in next week’s World Economic Outlook.
“Since then, the outlook has deteriorated substantially, largely because of the war and its repercussions,” she said. “Inflation, financial tightening and frequent, wide ranging lockdowns in China – causing new bottlenecks in global supply chains – are also weighing on activity.”
Chinese authorities last week put Shanghai into lockdown as part of a “zero Covid” strategy, aiming to slow the spread of the virus. However, repeated restrictions have led to factory shutdowns and backlogs of ships at Chinese ports, threatening to hit global trade and further add to already high inflation.
The head of the IMF warned that countries which are net importers of food and fuel – in Africa, the Middle East, Asia and Europe – risked the biggest growth downgrades. Ukraine would suffer “catastrophic economic losses” from the war, while Russia would see a “severe contraction” due to sanctions, she said. However, other nations will also struggle under the weight of higher commodity prices, trade friction and rising debt servicing costs.
“Higher energy and food prices are adding to inflationary pressures, squeezing real incomes of households around the world,” she said.
Her warning comes after official figures showed UK inflation reached 7% in March, the highest level since 1992, thanks to a surge in petrol and diesel prices. Inflation has reached 8.5% in the US, the highest level since the early 1980s, and 7.5% in the eurozone.
Georgieva warned that high rates of inflation worldwide were likely to remain elevated for longer than previously estimated. Although urging central banks to “act decisively” to combat the rising cost of living, she cautioned that policymakers needed to maintain critical spending and build foundations for durable growth.
“This is the most universally complex policy environment of our lifetime, posing tremendously difficult choices,” she said.
