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Clouds are gathering over global growth


The war in Ukraine significantly darkens the outlook for the global economy. After the World Bank and the ECB, the IMF published this Tuesday, April 19 lower growth forecasts for 2022. On the occasion of the spring meetings of the IMF and the World Bank which are currently taking place in Washington, the he institution announced that it now expects global growth of 3.6% this year, against 4.4% in January.

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Apart from Ukraine and Russia, which could see their activity collapse by 35% and 8.5% respectively, the euro zone should be the most affected by the “seismic waves” caused by the war in Ukraine. The IMF anticipates growth at 2.8%, down 1.1 points from January estimates. “The main channels through which the war in Ukraine and the economic sanctions imposed on Russia affect the economy of the euro zone are the global increase in energy prices and energy security”explained Pierre-Olivier Gourinchas, the IMF’s new chief economist, during a press conference.

Italy and Germany most affected

However, not all countries will be affected in the same way. “Countries with a relatively large manufacturing sector and greater dependence on Russian energy” will suffer the heaviest effects, in the forefront of which Italy and Germany, very dependent on Russian gas. Already weakened by the disruption of global production chains in the wake of the health crisis in 2021, Germany has seen its growth forecast for 2022 lowered to 2.1% by the IMF (down 1.7 points compared to january). Italian growth is expected at 2.3% (down 1.5 points).

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For its part, France is limiting the damage, with an expected GDP increase of 2.9%, or only 0.6 points less than in the January forecasts.

Given the uncertainty of the geopolitical context, the IMF wants to be cautious about these prospects. Without going so far as to mention a recession scenario, the institution’s economists believe that growth could slow further “if there was a toughening of sanctions against Russia coupled with a deterioration in consumer confidence and some volatility in the financial markets”. There would then be a reduction of around 3% by the end of 2023.

Sustained high inflation

The only certainty is that inflation now appears to be a lasting phenomenon, particularly in emerging countries. The IMF is thus counting on inflation at 5.7% this year for advanced countries (+1.8 points) and 8.7% (+2.8 points) for emerging and developing economies. Even if the peak is expected this year, it should remain very high in 2023, risking to aggravate the world food crisis.

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On the sidelines of the IMF conference, US Treasury Secretary Janet Yellen expressed concern that rising food prices could plunge 10 million people into poverty across the world. “We are facing growing global food insecuritythat hits the most vulnerable hardest – families who already spend a disproportionate share of their income on food”underlined the Minister.

Due to the pressure on global interest rates, this price spike may also reduce the fiscal space of emerging markets and developing economies that are oil and food importers.

The pandemic continues to weigh on growth

The war in Ukraine and its cascading consequences on prices and supply chains are not the only causes of this forecast drop. The confinements implemented in recent months in China to stem the Covid-19 pandemic will also weigh heavily on growth. The IMF also envisages growth there at 4.4% (-0.4 points) against 8.1% last year.

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As for the United States, GDP growth was reduced to 3.7%, down 0.3 points. This new projection takes into account “the faster-than-expected withdrawal of monetary support to contain inflation, as well as the impact of weaker growth in their trading partners resulting from the war” in Ukraine, detailed the IMF.

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