IMF downgrades global growth forecast, worries about risks of financial instability

Rising inflation and falling global growth. The International Monetary Fund (IMF) on Tuesday, April 19 cut its global growth forecast to 3.6% for 2022, down 0.8 points from January. Amendment justified by the war in Ukraine, sanctions against Russia and prisons enforced in China to prevent the outbreak of Kovit-19.

The Washington-based company expects inflation to be higher and longer than expected. The war in Ukraine will disrupt supply chains that have not recovered from the past two years, associated with factory closures, rising cargo prices and port congestion. These new disruptions will mainly affect the wheat trade (Ukraine and Russia provide 30% of global supply) to maize and increase the price of raw materials. “The extent of these changes depends not only on the decline in exports due to conflicts and sanctions, but also on the flexibility of global supply and demand.”The IMF analyzes that other countries’ reserves could be more easily used for oil than gas.

European countries have been hit hardest by the economic shock of the war in Ukraine, due to their proximity: consumer prices are expected to rise by 12.6% (and 5.3% in the euro zone) by 2022. South America or the Middle East, and where GDP growth has slowed sharply downwards, to 1.8 points, down 1.1 points from January forecasts.

“Vibration waves”

In comparison, US growth is shifting downwards by only 0.3 percentage points, mainly due to the tightening of monetary policy and declining activity among its economic partners. “The economic effects of the war spread far and wide – like seismic waves emanating from the epicenter of an earthquake – mainly through commodity markets, trade and financial flows.”Pierre-Olivier Gourinchas, the IMF’s new chief economist, writes in his introduction to forecasts.

Tight financial conditions could affect sovereignty and private borrowers, the IMF warns

The “Seismic waves” When the international financial situation is weak it will cause even more catastrophe. “Tightening financial conditions will highlight the vulnerability of sovereignty and private borrowers”, IMF warns. The war in Ukraine is complicating the work of the central banks. If they raise their rates too sharply in large developed economies, they will provoke capital outflows from developing countries and lead to a financial crisis. And they can be detrimental to the recovery of function.

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