War could destroy half of Ukraine's economy 1:21
(CNN Business) ––
The International Monetary Fund (IMF) lowered its growth expectations for the world economy in the next two years due to Russia's war in Ukraine.
To the point that he compared the effects of the invasion with an “earthquake”.
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"The economic effects of the war are spreading far and wide," the organization said in its latest outlook, released Tuesday.
The IMF now expects the global economy to expand by 3.6% in both 2022 and 2023, marking a sharp slowdown from 6.1% growth in 2021. The new forecasts reflect declines of 0.8 and 0 .2 percentage points, respectively, with respect to January.
The World Bank also reset its global growth forecast this week.
It now anticipates the global economy to expand by 3.2% in 2022.
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The IMF perspective assumes that the war remains confined to Ukraine, that additional sanctions against Russia do not target its huge energy sector, and that the effects of the pandemic continue to fade.
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Unsurprisingly, the conflict will hit Ukraine and Russia the hardest.
The IMF forecasts that Ukraine's economy will contract by 35% this year alone, while, it notes, efforts by the West to sanction Russia could lead its economy to contract by 8.5%.
However, the effects of the war will be felt almost everywhere.
The reason?
It caused a spike in energy and other commodity prices, thus worsening supply chain problems and fueling expectations of more persistent inflation.
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"The war will severely slow the global recovery, slowing growth and further increasing inflation," the IMF warned.
In that sense, the organization emphasized that the world economy had not fully recovered from the coronavirus pandemic when Russia invaded Ukraine at the end of February.
For Europe, which relies heavily on Russia for its energy needs, growth is now expected to slow to 2.8% in 2022, down just 1.1 percentage points from January.
America is comparatively isolated.
However, weakness among its trading partners, as well as plans by the Federal Reserve to quickly withdraw support for the economy during the pandemic era and raise interest rates, weigh on the outlook.
The IMF projects US growth of 3.7% in 2022 and 2.3% in 2023. That is, 0.3 percentage points less than its latest forecast.
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Black clouds are also gathering over China.
The IMF now expects the country to post 4.4% growth in 2022, well below Beijing's official target of around 5.5%.
The second largest economy in the world is now also suffering from lockdowns to stop the spread of covid-19, the consequences of the war in Ukraine and the problems in its real estate sector.
Although the report notes that "the global economic outlook has worsened significantly" since the beginning of the year, it does not anticipate a recession, which the IMF usually mentions when growth falls to 2.5% or less.
But the organization also notes uncertainty "well beyond the normal range" around its projections, due to the unprecedented nature of the impact.
And the risks of an even bigger slowdown, combined with persistently high inflation, are rising.
War could destroy nearly half of Ukraine's economy this year alone, World Bank says
Goldman Sachs this week estimated the probability of a US recession at 15% over the next 12 months and 35% over the next 24 months.
Japanese investment bank Nomura said on Monday that the chances of China slipping into recession this spring are increasing.
Much could depend on the next move by Russian President Vladimir Putin.
If Russian natural gas supplies to Germany were suddenly cut off, Europe's largest economy would lose a staggering $238 billion in economic output over the next two years, the country's top forecasters said.
Europe could also go further by sanctioning Russian energy.
French Finance Minister Bruno Le Maire said on Tuesday that an embargo on Russian oil was being worked on at the European Union level.
And he added that President Emmanuel Macron wants such a measure.
"The reason we are not there yet is not because France does not want it," Le Maire told Europe 1 radio. "It is because there are still certain European partners who are hesitant," he said.
IMFWar in UkraineRussian invasion of UkraineEconomic recession
