- Food and energy prices have surged in recent days and supply chains have frayed, adding to the inflationary pressures that policymakers were already struggling to tackle.
- “This crisis will create complex policy tradeoffs, further complicating the policy landscape as the world economy recovers from the pandemic crisis,” the Fund said.
- Ukraine will face “Significant recovery and reconstruction costs,” the IMF said.
The IMF has warned that Russia’s war with Ukraine, as well as the sanctions put on President Vladimir Putin’s country, will have a “serious impact” on the world economy as reported by Bloomberg.
Economic consequences
“While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,” the Washington-based lender said in a statement on Saturday.
In recent days, food and energy prices have risen sharply, and supply chains have weakened, adding to the inflationary pressures that policymakers were already grappling with. JPMorgan Chase & Co. economists lowered their global growth forecast by roughly a percentage point this year and upped their inflation forecast by approximately the same amount.
“Price shocks will have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses,” the IMF said. “Should the conflict escalate, the economic damage would be all the more devastating. The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spillovers to other countries.”
Domestic inflation
The Fund said central banks will need to “carefully monitor the pass-through of rising international prices to domestic inflation, to calibrate appropriate responses.” Governments will need to find ways to support the most vulnerable households and help offset rising living costs.
“This crisis will create complex policy tradeoffs, further complicating the policy landscape as the world economy recovers from the pandemic crisis,” the Fund said.
Ukraine will face “significant recovery and reconstruction costs,” the IMF said, noting that “substantial” economic damage had already been wrought by the war.
The country has sought the aid of $1.4 billion and IMF officials will consider the request as early as next week, according to the statement.
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Source: Bloomberg
