International Monetary Fund cut its global growth projections for 2022 and 2023, saying the war in Ukraine will slow economic growth and increase inflation. The crisis unfolds when the global economy has not fully recovered from the pandemic rising economic risks sharply and making policy trade-offs more challenging.
Economic damage from the war in Ukraine and sanctions on russia will contribute to a significant slowdown in global growth from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.
Inflation is expected to remain elevated as driven by war-induced commodity price increases and broadening price pressures. For 2022, inflation is projected at 5.7% in advanced economies and 8.7% in emerging market and developing economies—1.8.
Ukraine is projected to experience large GDP contractions in 2022 of -35%. The severe collapse in Ukraine is a direct result of the russian invasion, destruction of infrastructure, and exodus of its people.
The economic effects of the war are spreading far mainly through commodity markets, trade, and financial linkages. Because russia is a major supplier of oil, gas, and metals, and, together with Ukraine, of wheat and corn, the current and anticipated decline in the supply of these commodities has already driven their prices up sharply. The food and fuel price increases will hurt lower-income households globally, including Americas and Asia.
The war adds to the series of supply shocks that have struck the global economy over the course of the pandemic. Through closely integrated global supply chains, production disruptions in one country can very quickly cascade globally. Firms in Ukraine and Russia supply specialized inputs, and shortfalls in some of those inputs are already having impacts on European car manufacturers.
The war has also increased the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies. Such a tectonic shift would entail high adjustment costs and long-run efficiency losses as supply chains and production networks are reconfigured. It also represents a major challenge to the rules-based framework that has governed international and economic relations for the last 70 years.
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