IMF cuts global growth forecast

WASHINGTON (Reuters): The International Monetary Fund on Tuesday slashed its forecast for global economic growth by nearly a full percentage point, citing Russia’s war in Ukraine, and warning that inflation was now a “clear and present danger” for many countries.

The war is expected to further increase inflation, the IMF said in its latest World Economic Outlook, warning that a further tightening of Western sanctions on Russia to target energy exports would cause another major drop in global output.

The IMF said other risks to the outlook include a sharper-than-expected deceleration in China prompted by a flare-up of COVID-19 lockdowns.

Rising prices for food, energy and other goods could trigger social unrest, particularly in vulnerable developing countries, the IMF said.

Downgrading its forecasts for the second time this year, the global crisis lender said it now projects global growth of 3.6% in both 2022 and 2023, a drop of 0.8 and 0.2 percentage points, respectively, from its January forecast due to the war’s direct impacts on Russia and Ukraine and global spill overs.

Medium-term global growth is expected to decline to about 3.3% over the medium-term, compared to an average of 4.1% in the period from 2004 to 2013, and growth of 6.1% in 2021.

“What has Russia’s invasion of Ukraine cost? A crisis on top of a crisis, with devastating human costs and a massive setback for the global economy,” IMF Managing Director Kristalina told a food security panel on Tuesday.

War impacts 

The IMF has estimated that Ukraine’s GDP will collapse by 35% this year, while Russia’s output will shrink by 8.5% in 2022, while emerging and developing Europe, including both countries, will contract by 2.9%.

But IMF Chief economist Pierre-Olivier Gourinchas told a news briefing that a tightening of sanctions against Russia to include restrictions on energy exports could double Russia’s GDP decline to 17% by 2023.

The European Union, highly dependent on Russian energy, saw its 2022 growth forecast cut by 1.1 percentage points, while Britain now faces slower economic growth and more persistent inflation than any other major economy next year.