The IMF’s managing director said on Wednesday that the global economic outlook has turned “significantly darker” and could worsen further, citing Russia’s war in Ukraine and rapid inflation because of it, threatening widespread hunger and poverty.
The warning comes just months after the IMF has already cut its global growth forecast for 2022 and 2023.
Ukraine has been engulfed in war as the world struggles to recover from the ongoing impact of the COVID-19 pandemic, and has led to a spurt in inflation that threatens the gains of the past two years.
The international crisis-lender is forecasting “a further decline in global growth” in 2022 and 2023, Kristalina Georgieva said in a blog post published ahead of the G20 finance ministers and central bankers meeting in Bali on Friday and Saturday.
“This is going to be a difficult 2022 – and possibly an even tougher 2023, with increasing risk of recession,” she wrote.
The IMF is due to release its updated World Economic Outlook later this month, which Georgieva said would further lower its forecast for global growth from April’s estimate of 3.6 percent.
“We warned that given the potential downside risk it could get worse. Since then, many of those risks have materialized – and many of the crises facing the world have intensified,” she said.
The outlook remains “extremely uncertain”, and Georgieva warned that the poorest would be hit hardest.
There was also an increasing risk of “social instability” due to rising food and energy prices.
‘Multilateral’ cooperation
After a decade of low inflation, prices have risen around the world as economies normalize as demand for goods outstrips supply, but Russian invasion of Ukraine The sanctions imposed in late February and on Moscow led to a sharp rise in fuel and food prices.
Ukraine and Russia are major grain producers, and Russia is also a major source of energy for Europe, and has reduced supplies of natural gas to the region.
Inflation also complicates policymaking: Major central banks are raising interest rates to control prices, but this increases borrowing costs for emerging markets and developing countries, which face high debt burdens.
But Georgieva said it was important to fight a price rally despite the risk of a recession.
“Acting now will do less harm than acting later.”
Addressing the effects of war and pandemics is a top priority, which can only be addressed through “multilateral” financial aid and debt relief, she said.
“Reducing debt is an urgent need – especially in emerging and developing economies with liabilities in foreign currency (FX) that are more vulnerable to consolidating global financial conditions.”
Georgieva stressed that top priorities are reducing inflation, including cutting government spending that will aid the central bank’s efforts.
He called on the G20 to promote “coordinated international action”, including by rich countries providing essential aid to the poor.
Georgieva warned that most of the world’s economies are “completely shut” from global markets due to financial pressures, and lack the safety net of a large domestic market.
“They are calling on the international community to come up with bold measures to support their people. This is a call we need to heed.”