IMF cuts world growth forecast due to war

by | April 20, 2022 03:30 | News

The International Monetary Fund has slashed its global economic growth forecasts in response to Russia’s invasion of Ukraine and the resulting supply chain disruptions and spike in inflation.

However, disruptions to Russian and Ukraine exports may be windfalls for other commodity exporters, like Australia.

“This crisis unfolds while the global economy was on a mending path but had not yet fully recovered from the COVID-19 pandemic,” the IMF says in its latest world economic outlook.

“Beyond the immediate humanitarian impacts, the war will severely set back the global recovery, slowing growth and increasing inflation even further.”

At the same time frequent and wider-ranging lockdowns in the world’s second largest economy, China, has slowed economic activity there and could cause new bottlenecks in global supply chains, it says.

The IMF now expects world growth to be 3.6 per cent in 2022, rather than the 4.4 per cent it predicted in January.

For 2023, growth is also forecast to be 3.6 per cent, down from a previous estimate of 3.8 per cent.

“Inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures,” the Washington-based institution says.

For 2022, inflation is projected at 5.7 per cent in advanced economies and 8.7 per cent in emerging market and developing economies, compared with 3.9 per cent and 5.9 per cent respectively projected in January.

Prices of agricultural commodities are likely to rise further, particularly wheat where Russia and Ukraine account for close to 30 per cent of global wheat exports, and to a lesser extent, corn.

“These changes will add to already soaring prices of staple foods and mean that disruptions to Russian exports may be windfalls for other commodity exporters.”

Indeed, the IMF now expects Australian economic growth to be 4.2 per cent in 2022, up slightly from a previous forecast of 4.1 per cent, although for 2023 it expects growth of 2.5 per cent rather than 2.6 per cent.

However, Australian inflation is expected to rise to 3.9 per cent in 2022, rather than the 2.1 per cent previously thought, well above the Reserve Bank of Australia’s two to three per cent inflation target.

“Elevated inflation will complicate the trade-offs central banks face between containing price pressures and safe-guarding growth,” the IMF said.

The RBA warned in the minutes of its April board meeting released on Tuesday that rising inflation has likely brought forward the timing of an increase in the cash rate, with economists generally expecting a move in June.

Don't pay so you can read it.

Pay so everyone can.

Michael West headshot

Get our newsletter

Once a week.

Unsubscribe anytime.

Thank you! We'll also confirm via email.

Pin It on Pinterest

Share This