WASHINGTON: Global economic growth this year will manage to stay in positive territory despite the war in Ukraine, but a number of countries with already weak economies may be tipped into recession, International Monetary Fund (IMF) managing director Kristalina Georgieva (pix) said yesterday.
Georgieva told a Foreign Policy magazine forum that the IMF will lower its growth outlook when it releases new forecasts in April. The IMF last forecast 4.4% global growth for 2022 in January, down about a half percentage point from October forecasts, due to ongoing supply disruptions.
But shocks from higher energy and food prices caused by the conflict and punishing sanctions against Russia for its invasion of Ukraine will hit many developing countries hard, she said, along with tighter financial conditions as advanced countries raise interest rates.
“What we were striving for is for growth to go up and the inflation that has become a problem to go down,” Georgieva said. “Instead, we have the exact opposite. Growth is going down, inflation is going up.”
The IMF plans to update its forecasts when it issues a new World Economic Outlook during its April 18-24 Spring Meetings with the World Bank in Washington.
“We are going to see possibly risk of recessions in these countries where shock comes on top of a weak economy.”
Georgieva and IMF first deputy managing director Gita Gopinath also said curtailments of grain shipments from Ukraine and Russia mean higher food inflation and hunger, particularly in Africa.
Gopinath said this could result in new social tensions in Africa, the Middle East and parts of Asia.
“So this is a major concern and the longer this war lasts, the more grievous the problems become,” she said, adding that the IMF stands ready to help countries with balance of payments assistance to help them import food supplies.
Gopinath also said the consequences for the global financial system if Russia cannot pay its foreign debts are likely to be “limited”.
“If there were a default, I think the direct effect on the rest of the world would be quite limited, because the numbers that we’re looking at are relatively small from a global perspective,” she said. “It is not a systemic risk to the global economy,“ although some banks have “greater exposure,“ she said in the discussion with Foreign Policy.
The United States and its allies have imposed tough financial sanctions on Russia in retaliation for its invasion of Ukraine, but Moscow so far has made debt payments.
The sanctions effectively have severed Russia's ties to the global financial system, prohibiting most transactions except for debt payments and oil purchases.
The measures also froze the government's stockpile of US$300 billion in foreign currency reserves held abroad.
Gopinath dismissed the idea that the fallout from the Western sanctions would undercut the US dollar as the world’s dominant reserve currency, but said it could contribute to the “fragmentation” of payments systems and shift global trade, particularly in energy, and especially if the war is prolonged.
“For a fact we know that energy trade will never look the same again after this war,” she said.
Countries might also reconsider how much they hold of certain currencies, she added. – Reuters, AFP
