This in turn, increases uncertainty already caused by the coronavirus (and variants) and pushes up food prices.
The 190-country lender lowered its global growth forecast to 3.6% for this year. This is a sharp drop from 6.1% last January and the 4.4% it had predicted for 2022. The lender also stated that it expected the world economy will grow by 3.6% next year, slightly less than the 3.8% forecast in January.
The war and its darkening outlook came as the global economy seemed to be reversing the effects of , the highly infectious omicron variant.
Pierre-Olivier Gourinchas, chief economist at IMF, stated to reporters that the war would slow down economic growth and increase inflation.
The IMF now expects Russia's economy, ravaged by sanctions to shrink 8.5% and Ukraine's to shrink 35%.
The U.S. economy is expected to shrink to 3.7% in this year, from 5.7% in 2021. This was the slowest growth rate since 1984. This forecast is a decrease from the IMF's prediction of 4% at the start of the year. Federal Reserve interest rates will slow down U.S. growth. They are meant to counter resurgent inflation and a slowdown in key American trading partners.
The economic impact of the Russia-Ukraine conflict will be most severe for Europe, which is heavily dependent on Russian energy. The IMF predicts that the collective growth rate of the 19 euro-coin countries will be 2.8% by 2022. This is a sharp decline from the 3.9% forecast in January and 5.3% last year.
According to the IMF, China's economy, which is second in the world, will see its growth slow to 4.4% this year, from 8.1% by 2021. Beijing's zero COVID strategy has led to severe lockdowns within bustling commercial areas like Shanghai and Shenzhen.
Some countries that export commodities, owing to the rising cost of raw materials, will likely defy the trend towards slower growth. The IMF has increased its forecast for Nigeria's oil producer to 3.4%, up from 2.7% in January.
After the devastating coronavirus crisis of 2020, the world economy has rebounded with surprising strength. The rebound had its problems. Businesses were caught off guard by a surge of customer orders that overwhelmed factories, ports, and freight yards. The result was longer shipping delays and higher prices.
The IMF predicts that consumer prices will rise by 5.7% in advanced economies around the world this year. This is the highest increase since 1984. The inflation rate in the United States is at its highest level in four decades.
To counter rising prices, central banks are increasing interest rates. This could halt economic growth. Russia-Ukraine war has increased the prices of oil, natural gases, and other commodities. This has made it more difficult for them to combat inflation while maintaining economic recovery.
The conflict has also "triggered the largest refugee crisis Europe since World War II," according to the IMF. It cut supplies and raised the prices of fertilizer, grain and rice produced in Russia and Ukraine, which in turn threatened food security in Africa, as well as in Middle East. Last week, IMF managing Director Kristalina Georgiaieva warned that there is a danger of more hunger, poverty, and social unrest.
The IMF stressed the uncertainty in its forecasts as well as the difficulties governments and central banks have in adapting to rapidly changing conditions. The war could get worse. It is possible that sanctions will tighten. Georgieva stated that COVID could roam around the globe again on Tuesday. "This is a difficult time for policymakers."