The International Monetary Fund has cut its expectations for global economic growth over the next two years due to Russia’s invasion of Ukraine, likening the ripple effects of the conflict to an “earthquake”.
“The economic effects of war spread far and wide,” the organization said in its latest outlook, released on Tuesday.
The IMF now expects the global economy to grow by 3.6% in 2022 and 2023, a sharp deceleration from 6.1% growth in 2021. The new forecasts reflect downward revisions to 0.8 and 0.2 percentage points, respectively, from its January forecast.
The outlook assumes that the war remains confined to Ukraine, that new sanctions against Russia do not target its huge energy sector and that the effects of the pandemic continue to fade.
According to the IMF, the conflict will hit Ukraine and Russia the hardest. The IMF expects Ukraine’s economy to shrink by 35% this year, while Western efforts to punish Russia are poised to cause its economy to shrink by 8.5%. But because the war has caused energy and other commodity prices to soar, compounding supply chain problems and fueling expectations of more persistent inflation, its effects will be felt almost everywhere.
“The war will severely hamper global recovery, slow growth and further increase inflation,” the IMF said in its report, noting that the global economy had not fully recovered from the coronavirus pandemic when Russia invaded Ukraine at the end of February.
In Europe, which relies heavily on Russia to meet its energy needs, growth is now expected to slow to 2.8% in 2022, down 1.1 percentage points from January.
The United States is relatively isolated. Still, weakness in its trading partners, along with the Federal Reserve’s plans to quickly withdraw support for the economy amid the pandemic and raise interest rates, are weighing on the outlook. The IMF projects US growth of 3.7% in 2022 and 2.3% in 2023, down 0.3 percentage points since its last forecast.
While the report observes that “the global economic outlook has deteriorated significantly” since the start of the year, it does not predict a recession, which the IMF typically calls when growth falls to 2.5% or lower.
But the IMF also notes “well beyond the normal range” uncertainty surrounding its projections due to the unprecedented nature of the shock. And the risks of an even deeper slowdown, coupled with still high inflation, are increasing.