War Dims Global Economic Outlook as Inflation Accelerates

The effects of the war will propagate far and wide, adding to price pressures and exacerbating significant policy challenges.

 
Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine.

This crisis unfolds even as the global economy has not yet fully recovered from the pandemic. Even before the war, inflation in many countries had been rising due to supply-demand imbalances and policy support during the pandemic, prompting a tightening of monetary policy. The latest lockdowns in China could cause new bottlenecks in global supply chains.

In this context, beyond its immediate and tragic humanitarian impact, the war will slow economic growth and increase inflation. Overall economic risks have risen sharply, and policy tradeoffs have become even more challenging.

Compared to our January forecast, we have revised our projection for global growth downwards to 3.6 percent in both 2022 and 2023. This reflects the direct impact of the war on Ukraine and sanctions on Russia, with both countries projected to experience steep contractions. This year’s growth outlook for the European Union has been revised downward by 1.1 percentage points due to the indirect effects of the war, making it the second largest contributor to the overall downward revision.

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Πηγή: blogs.imf.org