IMF Warns About Inflation And Impending Impact On Global Economy

The International Monetary Fund chief warned this week that the Russian invasion of Ukraine has weakened the economic outlook for a majority of the world and that sky-high inflation posed a “clear and present danger” to the global economy.

IMF Managing Director Kristalina Georgieva said Thursday that the Washington-based institution will downgrade its growth outlooks for 143 economies – representing about 86% of total economic output in the world – in 2022 and 2023 as a result of the Ukraine war, which has driven food and energy prices higher worldwide.

Worst conflict Europe has witnessed

She said the conflict, which is the worst that Europe has seen in decades, has sent “shockwaves” throughout the globe, dealing a massive blow to countries still recovering from the COVID-19 pandemic.

“The root cause of what we face today is the war, and it is the war that must end,” Georgieva said in remarks to the Carnegie Endowment for International Peace in Washington. “In economic terms, growth is down and inflation is up. In human terms, people’s incomes are down and hardship is up.”

Georgieva also sounded the alarm that Western sanctions imposed on Russia reflect a world order that has already been “severely impacted” and could further exacerbate the “fragmentation of the world economy into geopolitical blocs.”

Russia targeted

The U.S. and European nations targeted Russia with severe financial penalties that are designed to cripple its economy following the Feb. 24 invasion of Ukraine.

The penalties include cutting off a key part of the Central Bank of Russia by preventing it from selling dollars, euros and other foreign currencies in its roughly $630 billion reserve stockpile; blocking certain financial institutions from the Swift messaging system for international payments; and sanctioning many Russian lawmakers and elites who have close ties to Vladimir Putin.

The U.S. also ordered a ban on Russian oil imports in addition to blocking new investments in the country.

In the U.S., fallout from the war has exacerbated already sky-high inflation.

The Labor Department on Tuesday reported that consumer prices soared 8.5% in March from the previous year, the fastest pace since December 1981.

Clear and present danger

The IMF expects that inflation, which Georgieva called a “clear and present danger” to the global economy, will remain elevated for longer than previously expected. Soaring prices, which are forcing central banks around the world to raise interest rates in a bid to cool consumer demand, will likely slow economic growth in the process.

It amounts to a “massive setback for the global recovery,” Georgieva said.