The Fund revised down its forecast for global growth for the second time yesterday - by almost a whole percentage point - warning that the Russian invasion of Ukraine and the parallel economic war on sanctions have acute consequences at five levels:
- They are slowing down the global recovery after the pandemic.
- They consolidate the inflation threat.
- They are accelerating the shift of central banks to more expensive money.
- They trigger pressures in international trade.
- They intensify the challenges for countries with high, accumulated debts.
The war in Ukraine is not only threatening global economic growth - it is also testing, according to the IMF, the resilience of the global financial system.
In its semi-annual report on Global Financial Stability, the Fund emphasizes that the Russian invasion of Ukraine has intensified the risks to the financial system "on multiple fronts" and even at a time when interest rates are rising sharply.
The IMF warns that, although so far there has been no systemic financial episode worldwide, there are several channels through which the vibrations of war can spread to the financial system.
Among these channels are the banks and other financial institutions that have openings in Russia, while in the side effects of the war the Fund also includes the disturbances in the commodity markets, the narrowness of liquidity and financing, as well as the growth of the cryptocurrency market.
"Although the financial system has proven resilient to the recent shocks, future turmoil may prove to be more painful," the IMF said in a statement, adding: injuries left by the pandemic and lead to a sharp drop in asset prices ".
Adrian Tobias Fund head of capital markets points to the derivatives market as a "zone" of particular concern, noting that its opacity makes it difficult to know if and to what extent there is "hidden leverage".
The new conditions created by the war intensify the challenges for the central banks, which - as the report emphasizes - are forced to maintain difficult balances by raising interest rates to deal with inflation without risking a new recession.
According to the Fund, the tightening of monetary policy to curb inflation will eventually pay off, but the report warns that "many countries will likely be forced to raise interest rates well above neutral levels in order to keep prices in check."
The IMF also warns that the "tighter" credit conditions are expected in emerging markets, where the chances of investors leaving are also high.
The new forecasts for economy and inflation
In its World Economic Outlook report, the IMF lowers its GDP growth target to 3,6% both this year and 2023. This estimate marks a negative revision of 0,8% for in 2022 compared to the previous forecast of the IMF last January and by 0,2% for 2023, reflecting the already acute effects of the war.
The Fund warns of "unusually high uncertainty" even in these new forecasts and warns that there could be a further deterioration in development prospects, as well as social unrest if the war is prolonged, energy sanctions against Russia are extended, the Chinese economy and a new pandemic wave.
"The global economic outlook is deteriorating, mainly due to the Russian invasion of Ukraine," said IMF chief economist Pierre Olivier Gourinha, adding that inflation was now a "real and clear threat" to many countries.
The toughest price is expected, as expected, by the economies of Russia and Ukraine, for which a sharp recession is forecast, while the blow is also strong for the European Union, where the IMF revises its forecast by 1,1% for the growth rate of 2022. The growth rate of the Eurozone is now estimated to be limited to 2,8% this year and 2,3% in 2023, while the corresponding forecasts for the US are 3,7% and 2,3% (negative revision by 0,3%).
In Ukraine, the IMF predicts a shock recession this year with a shrinking GDP by 35%, while in Russia war and sanctions are estimated to lead to a recession of 8,5% this year and 2,3% in 2023. Pan-European inflation is estimated at 12,6% this year and 7,5% in 2023, while only for the Eurozone the corresponding forecasts are 5,3% and 2,3% respectively.
"The war is multiplying the supply shocks that have hit the world economy in recent years," Gurinkhas said, adding: "As with seismic waves, the effects of war will be far-reaching."
Source: economytoday