Russia’s invasion of Ukraine has caused a “massive setback” for the economic recovery from the coronavirus pandemic, said the head of the IMF, with lower growth and higher inflation expected in most countries.
Speaking at the Carnegie Endowment in Washington on Thursday ahead of next week’s IMF and World Bank spring meetings, Kristalina Georgieva said the economic fallout of the war in Ukraine is spreading across the world.
Her analysis of the global economy was pessimistic, saying Russia’s invasion made “much worse” the squeeze on incomes for hundreds of millions of people around the world already suffering from higher food and energy prices.
“This is a massive setback for the global recovery,” Georgieva said. “For the first time in many years, inflation has become a clear and present danger for many countries.”
The fund’s managing director said that in its economic forecasts next week, the IMF would downgrade growth expectations for 143 countries around the world, representing 86 per cent of global gross domestic product.
Although some commodity exporters were enjoying brighter prospects as prices for their exports increased, these would be easily offset by the downgrades in most countries. For those hardest hit, there would be “catastrophic economic losses in Ukraine [and] a severe contraction in Russia”, she added.
As Russia and Ukraine are leading exporters of wheat and fertiliser, food insecurity would become a “grave concern” in areas such as sub-Saharan Africa and some Latin American countries.
With inflation hitting a fresh 40-year high in the US and a 30-year high in the UK this week, the IMF said its forecasts next Tuesday would also show rapid price increases would be more persistent than it previously thought.
The task for central banks and economic policymakers, Georgieva said, was to “rein in high inflation and rising debt, while maintaining critical spending and building foundations for durable growth”.
Georgieva was under no illusions how difficult this task would be and avoided making specific monetary policy suggestions while urging an end to the war in Ukraine.
“In the face of this challenge, central banks should act decisively, keeping their finger on the pulse of the economy and adjusting policy appropriately. And, of course, communicating clearly,” she said.
The head of the leading international financial institution also urged countries to recognise the threat of a fragmentation into economic blocs which would amplify the negative outlook she presented.
“In a world where war in Europe creates hunger in Africa; where a pandemic can circle the globe in days and reverberate for years; where emissions anywhere mean rising sea levels everywhere — the threat to our collective prosperity from a breakdown in global co-operation cannot be overstated,” Georgieva said.