Global economic prospects dwindle as war and epidemics cast their shadows

WASHINGTON – The global economy has entered a period of great uncertainty as the outbreak of a volatile pandemic and the fallout from the Russian war in Ukraine pushed up inflation and weighed on an already fragile global recovery.

These conflicting challenges confront policymakers and central bankers in the United States and Europe as they seek to bring down inflation without slowing growth to the point that their economies slide into recession. Last week, international organizations and think tanks began lowering their forecasts for growth and trade as they assess the war’s disruption to global energy, food and commodity supplies, as well as sweeping shutdowns in China to contain the renewed coronavirus outbreak.

The International Monetary Fund on Tuesday emphasized the weakness of the global economy, which said in its World Economic Outlook that global output is expected to slow this year to 3.6 percent, from 6.1 percent in 2021. He forecast growth in January of 4.4 percent this year.

“Global economic prospects have deteriorated sharply, in large part due to Russia’s invasion of Ukraine,” Pierre-Olivier Gorenchas, chief economist at the International Monetary Fund, said at a press conference on Tuesday. “This crisis is unfolding because the global economy has not yet fully recovered from the pandemic.”

Economic concerns A central topic for policymakers gathering in Washington this week for the Spring Meetings of the International Monetary Fund and the World Bank.

The meetings will provide an opportunity for the United States to show its solidarity with the Ukrainian officials who will attend and to demonstrate that Russia will remain isolated on the international stage as long as its invasion continues.

Treasury Secretary Janet L. Yellen plans to attend an opening session on Wednesday that will feature Ukraine’s finance minister as the United States looks to stand with its allies in opposing the Russian invasion, a Treasury official said. Ms Yellen will not attend some G-20 sessions, such as those on international financial architecture and sustainable finance, if the Russians participate.

The impact of the Russian war on the global economy will dominate the meetings.

Mr Gorinchas said the war was slowing growth and spurring inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian supplies of oil, gas and minerals, along with Ukrainian exports of wheat and corn, would spread across commodity markets and across the global economy “like seismic waves.”

He acknowledged that the course of the global economy would depend on how the war progressed and on the ultimate scope of the sanctions that the United States and its allies in Europe and Asia had imposed on Russia.

“The uncertainty around these forecasts is significant, well beyond the usual range,” said Mr. Gourinchas. “Growth may slow further while inflation may exceed our expectations, for example, if sanctions extend to Russian energy exports.”

Ukraine and Russia are facing the worst economic consequences of war. The International Monetary Fund expects the Ukrainian economy to contract by 35 percent this year, while the Russian economy is expected to contract by 8.5 percent. Mr. Gourinchas noted that the Russian authorities have so far been able to contain the collapse of their financial system and avert bank failures, but that more sanctions targeting its energy industry could have a greater impact on its economy.

Mr. Gorinchas said that Russian sanctions imposed by America and its allies are the main factor contributing to the downward revision of the IMF’s global growth outlook, adding that tightening restrictions targeting Russian energy exports would present an “opposite scenario” that would further slow production around the world.

The International Monetary Fund has said that price hikes around the world are showing no signs of abating, even if supply chain problems ease. It expects inflation to remain high throughout the year, forecast at 5.7 percent in advanced economies and 8.7 percent in emerging markets.

International organizations and other research groups have lowered their expectations. At the Peterson Institute for International Economics, a Washington think tank, economists anticipation Global growth will decline rapidly from 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023.

The World Bank also expressed concern On the state of the global economy this week, he warned that the ongoing pandemic, the Covid-19 lockdown in China and rising inflation could amplify income inequality and poverty rates. It cut its 2022 growth forecast to 3.2 percent from 4.1 percent.

“I am very concerned about developing countries,” David Malpass, president of the World Bank, said Monday. They face sudden increases in energy, fertilizer and food prices, and the prospect of higher interest rates. Everyone hits them hard.”

Inflation is now rising in many parts of the world, not just in the United States, where it has reached its highest levels in 40 years.

According to the Bank for International Settlements, More than half of emerging economies have inflation rates higher than 7 per cent. The bank said 60 percent of “advanced economies”, including the United States and the eurozone, had inflation above 5 percent, the largest share since the 1980s.

In Britain, inflation jumped to 7 percent in Marchthe highest level in 30 years.

A Bank of America Securities April 12 survey of global investors found that more than two-thirds were pessimistic about global growth prospects in the coming months.

Karen Dinan, a senior fellow at the Peterson Institute and a former economist at the Federal Reserve, said underlying demand in the United States has remained strong, due to the savings consumers built up during the pandemic and their pent-up desire to spend.

“Demand will and will have to be restricted through the cancellation of the cash facilities,” she said. “And this has become very evident in recent months.”

She added that in addition to the war, the epidemic and high interest rates, China is facing a downturn in the real estate sector, and the Brazilian economy may be affected by the political turmoil associated with the upcoming elections.

New data shows that China’s economic growth and retail sales back offAs the government imposes comprehensive closures to eliminate the Corona virus. By April 11, 87 of the 100 largest cities in China had imposed some form of movement restrictions, according to Gavekal Dragonomics, an economic research firm.

The restrictions are once again disrupting global supply chains for electronics, auto parts and other goods, and discouraging China’s imports of oil, food and consumer goods. China is the world’s largest oil importer, and lower demand there caused the International Energy Agency last week trim her expectations For oil demand growth this year to 1.9 million barrels per day, from an increase of 5.6 million barrels per day last year.

The Russian invasion of Ukraine, and the sanctions imposed to punish Moscow, also threaten to push European economies into recession. Last week, forecasters in Germany’s largest economic institutes expected A full European ban on Russian energy imports would cause German production to shrink by 2.2 percent next year and push inflation to 7.3 percent, a record for post-war Germany.

In a speech last week to the Atlantic Council, a Washington think tank, Treasury Secretary Janet L. Yellen called on countries that have been on the sidelines to pressure Russia to end the war, and urged China not to help Russia evade sanctions.

Ms Yellen’s deputy, Wali Adeemo, said on Monday that policy makers need to ensure that the war does not burden developing countries. But he made it clear that sanctions will not go away until Russia backs down.

“As long as the Russian invasion continues, our sanctions will continue,” Mr. Adeemo said in remarks at the Peterson Institute.

But deep uncertainty about the duration of the war and sanctions makes economic forecasting more difficult.

Last week, while the World Trade Organization lowered its forecast for global trade growth this year, it acknowledged that those estimates could change dramatically.

expect Global merchandise trade volume will expand 3 percent this year, down from a previous forecast of 4.7 percent. Depending on how the pandemic and war unfold, trade growth could be as low as 0.5 percent or as low as 5.5 percent, said Ngozi Okonjo-Iweala, director-general of the organization, at a press conference last Tuesday.

The group expected global trade growth to rebound to 3.4 percent next year, although these estimates are also subject to change.

Dr Okonjo-Iweala said the war has prevented the organization’s economists from gathering key data on economic output, forcing them to rely on internal simulations of how sanctions against Russia, the destruction of Ukraine’s infrastructure, and the broader erosion of business and consumer confidence. She said it will affect global growth.

“The economic repercussions of this conflict will extend far beyond Ukraine’s borders,” she said. “It is now clear that the double whammy of the pandemic and war has disrupted supply chains, increased inflationary pressures, and lowered expectations for production and trade growth.”