War in Ukraine: Conflict lowers World Bank and IMF forecasts for global economy

April 20, 2022

Robert

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Figures of the damage caused by Ukraine’s war to the global economy are beginning to appear in the reports of the world’s leading financial institutions.

The numbers indicate a deep deterioration of the projections in relation to the scenario designed only a month before the beginning of the conflict, which has lasted 55 days. And they dismantle the expectation of countries’ recovery from the second half of the year, after the most critical period of the coronavirus crisis for many of them.

This Tuesday (19), the IMF (International Monetary Fund) released its forecasts for the growth of the Gross Domestic Product of nations and the behavior of inflation:

The forecast of growth of the world economy for 2022 went from 4.4% in January to 3.6%;
THE inflation in 2022 is estimated 5.7% for advanced economies (up 1.8 percentage points from the forecast in January) and 8.7% for emerging countries and in development (up 2.8 points from January).

“The downgrade largely reflects the direct impacts of the war in Russia and Ukraine and its global repercussions,” the IMF explains in its report. “In addition to the immediate humanitarian impacts, the war will severely delay global recovery, slowing growth and further increasing inflation.”

The release of the IMF figures came a day after the World Bank cut its global growth forecast by 4.1% to 3.2% in this year. The decline was mainly driven by an estimate of a 4.1% contraction in the Europe and Central Asia region, which includes Ukraine and Russia.

What explains: the conflict between Russia and Ukraine mainly impacts the supply of food and energy, pushing up their prices.

According to both surveys, Ukraine, the target of the Russian invasion, has one of the scariest predictions of GDP shrinkage:

35% is the expected fall of Ukraine’s economy in 2022, according to the IMF;
45% is the reduction estimated by the World Bank.

The main factors are the direct effects of the invasion, such as the destruction of infrastructureand the escape from your population. The fastest exodus since World War II has reached nearly 5 million people, according to the UN.

But the expected retraction for the Russian economy is also significant and reaches double digits in one of the projections:

8.5% will be the fall, according to the IMF;
11.2% is the reduction estimated by the World Bank.

In this case, the main causes are the economic sanctions imposed by the West, which affected trade relations with several countries, and the loss of confidence from the market.

Three IMF perspectives on the international impacts of the Ukraine war, according to the report released on Tuesday:

Do not get lost

Three IMF perspectives on the international impacts of the Ukraine war, according to the report released on Tuesday:

commodity market: The Fund expects still persistent rises in the price of agricultural products such as wheat. Regarding fuel, he predicts that the increase in oil can be contained in the medium term due to supplies from other countries. But this adaptation will be more difficult for the gas, due to the limitation of the structure necessary for its transport.
Financial market: Direct financial connections between Russia and other major economies are concentrated in a few countries, mainly in Europe. However, a more severe scenario of uncertainty can make investors’ risk assessment more rigid – which would affect emerging and developing economies, especially those with large external debt.
humanitarian crisis: The distribution of the approximately 5 million refugees with the war can, in the short term, overload the services of the countries where they are destined. The IMF lists other long-term social effects, such as an increase in the supply of labor and a worsening of anti-immigration sentiment.