IMF set to lower 2022 global growth estimate as Russia-Ukraine war escalates

The conflict is expected to dent business and consumer confidence, forcing trade to shrink, the fund's managing director says

The International Monetary Fund's offices in Washington. The fund expects the rise in oil and gas prices to stoke inflation and hit growth. Reuters

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The International Monetary Fund is expected to lower its global growth projections as the intensifying Russian war in Ukraine looks set to severely dent business and consumer confidence, forcing global trade to contract this year.

“We got through a crisis like no other with the pandemic, and we are now in an even more shocking territory,” IMF managing director Kristalina Georgieva told a media roundtable on Thursday. “The unthinkable happened: we have a war in Europe.”

The worsening conflict has had a spillover effect on global economic output, which is expected to lead to a downgrade of the growth forecast when the Washington-based fund presents its World Economic Outlook before its spring meetings next month.

“A lot depends on the duration of this war and therefore, consequentially, the severity of the sanctions and how long it lasts,” Ms Georgieva said.

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  This satellite image provided by Maxar Technologies shows destroyed and burning warehouse buildings in Stoyanka, Ukraine, in the western Kyiv region, during the Russian invasion. AP

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  Children shelter in a metro station in Kharkiv. Moscow said on March 10, 2022, that it will open daily humanitarian corridors to allow civilians fleeing fighting in Ukraine to reach Russian territory, despite Kyiv insisting that no evacuation routes should lead to Russia. AFP

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  Russian President Vladimir Putin during a videoconference meeting with government members at the Kremlin in Moscow. The meeting focuses on minimising the effects of sanctions on the Russian economy. Russian troops entered Ukraine on February 24, prompting the country's president to declare martial law and triggering a series of severe economic sanctions imposed by western countries. EPA

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  Rescuers work among remains of buildings damaged by an air strike in Dnipro, Ukraine, as Russia's attack on the country continues. Reuters

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  Members of the National Guard of Ukraine, Oleksandr and Olena, listen to a priest at their wedding in Ukraine. Reuters

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  People fleeing Russia's invasion of Ukraine warm up by a fire near the train station in Lviv, Ukraine. Reuters

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  Russian forces rolled their armoured vehicles up to the northeastern edge of Kyiv, edging closer in their attempts to encircle the Ukrainian capital. AFP

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  A woman covers herself with a blanket near a damaged fire truck after shelling in Mariupol, Ukraine. AP Photo

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  A Ukrainian soldier hides from a helicopter air strike near Demydiv, Ukraine. Reuters

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  Ukrainian soldiers walk past a monument of the city founder Duke de Richelieu, covered with sand bags for protection, in Odessa, Ukraine. Reuters

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  Russian Foreign Minister Sergey Lavrov, left, Turkish Foreign Minister Mevlut Cavusoglu, centre, and Ukranian Foreign Minister Dmytro Kuleba. EPA

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  Russian Foreign Minister Sergey Lavrov in talks with Ukrainian counterpart Dmytro Kuleba during a tripartite meeting chaired by Turkish Foreign Minister Mevlut Cavusoglu, in Antalya, Turkey. AP

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  Russian Foreign Ministry spokeswoman Maria Zakharova speaks to the media as the foreign ministers of Ukraine, Russia and Turkey hold talks in Antalya, 15 days after Russia launched a military invasion on Ukraine. AFP

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  A Ukrainian serviceman says goodbye to his girlfriend before departing in the direction of Kyiv at the central train station in the western Ukrainian city of Lviv. AFP

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  Valerii Sushkevych, president of the Ukraine National Paralympic Committee, and the Ukraine delegation raise their fists and pose with a banner at the Beijing 2022 Winter Paralympic Games. Reuters

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  A member of the Ukrainian team cries during a moment of silence at the Zhangjiakou athletes village during the Beijing 2022 Winter Paralympic Games. AFP

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  Turkish Foreign Minister Mevlut Cavusoglu, right, and Ukraine Foreign Minister Dmytro Kubela, second left, in Antalya, Turkey. AFP

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  A man is supported after crossing the Irpin river while fleeing the town of Irpin, Ukraine. AP

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  People are helped out of a damaged children's hospital following a Russian air strike in the southeastern city of Mariupol, Ukraine. AFP

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  A man rides a bicycle in front of an apartment building that was damaged by shelling in Mariupol. AP

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  A woman carries two babies after arriving at a triage point in Kyiv, Ukraine. AP

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  A man hugs an elderly woman after crossing a damaged bridge as they flee from the frontline town of Irpin, near the Ukrainian capital of Kyiv. EPA

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  Local residents cook at a makeshift camp next to a checkpoint in Kyiv. EPA

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  Ukrainian men chop wood at a makeshift camp next to a checkpoint in Kyiv. EPA

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  A member of the Territorial Defence Forces learns how to use a Javelin missile during a training session in Kyiv. EPA

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  Members of the Territorial Defence Forces learn how to give first aid during the training session. EPA

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  A woman rescued from the outskirts of Kyiv holds a plate of food after arriving at a triage point in the Ukrainian capital. AP

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  A woman cries after arriving at the triage point in Kyiv. AP

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  Civilian vehicles drive past a destroyed Russian tank as they leave Irpin. AP

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  Ukrainian servicemen stand in a foxhole in Irpin. AP

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  People gather on a platform to board a train leaving Odesa after the US said Russian troops are making preparations to attack the city. AFP

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  A Ukrainian woman looks for food in a bin in Odesa's city centre. AFP

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  Ukrainian servicemen look towards Russian positions outside the city of Brovary, east of Kyiv. AFP

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  A man walks past a shelled house at the village of Velyka Dymerka, east of Kyiv. AFP

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  A Ukrainian serviceman stands at a check point in the vilage of Velyka Dymerka east of Kyiv. AFP

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  A Ukrainian woman plays with her child in a temporary refugee shelter in Przemysl, Poland. Reuters

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  A woman waits outside a maternity and children's hospital damaged by shelling in Mariupol, Ukraine. AP

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  A pregnant woman leaves the hospital after she was wounded when it was bombed. AP

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  A woman waits outside the damaged hospital in Mariupol. AP

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  A man wounded by shelling in Mariupol. AP

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  A car burns after the destruction of the children's hospital in Mariupol. Reuters

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  A mortuary worker wheels a stretcher used to move dead bodies before they are buried on the outskirts of Mariupol. AP

The fund has already lowered its global growth projection for 2022 to 4.4 per cent. The estimate in January was half a percentage point lower than its October 2021 projection on weaker economic momentum in the US and China amid rising inflation and higher energy prices.

The war could reduce global gross domestic product by as much as 1 per cent by 2023, or about $1 trillion, and add up to 3 per cent to global inflation in 2022 and about 2 percentage points in 2023, according to the UK’s National Institute for Economic and Social Research.

The sharp rise in oil and gas prices will further stoke inflation and crimp growth, putting some of the emerging market economies, with little policy headroom, in a difficult spot.

Even China, which has more room to adjust monetary policy, will not be immune, she said.

In broader Asia, there are a number of countries where the "energy price shock is going to be felt" and "that also applies to China”, she said. “They're aiming for 5.5 per cent … [growth and] that may be hard to achieve.”

The war will continue to inflate the prices for commodities such as wheat, corn, metals and fertiliser, and their impact will be felt on real incomes. It will severely dent business and consumer confidence.

“When we look at the real economy, clearly we see contraction in trade, but also, a dent [in] consumer confidence and purchasing power,” she said. “It is especially dangerous for families that are living in poverty, for whom food and fuel are the higher proportion of their expenses.”

Russia’s economy will also suffer the consequences of its military aggression in Ukraine amid the co-ordinated punitive action of the US and its allies.

“Unprecedented sanctions have led to [the] abrupt contraction of the Russian economy, moving into a deep recession,” Ms Georgieva said.

“We are mindful that massive currency depreciation is driving inflation up. It is denting severely the purchasing power and standards of living for a vast majority of the Russian population.”

On Thursday, the Institute of International Finance projected that Russia's economy will shrink 15 per cent this year amid a series of western sanctions, with an economic contraction expected to be twice as severe as the 2009 recession.

“The speed and severity of sanctions imposed on Russia after its invasion of Ukraine [are] remarkable. They have led to a drastic and unprecedented tightening in financial condition,” the IIF said.

“Further escalation of the war may bring more boycotts of Russian energy, which would drastically impair Russia’s ability to import goods and services, deepening the recession. Our baseline forecast assumes continued fighting, but not a sharp escalation in the conflict.”

Russia’s economy is wobbling amid tighter sanctions imposed by the US and its allies against Moscow after its military offensive in Ukraine. Russian companies, financial institutions and oligarchs in President Vladimir Putin's inner circle are facing asset freeze by western companies.

Many foreign companies have exited or temporarily suspended operations in Russia. Moscow is now considering nationalising the assets of foreign companies that have severed business ties, a move that is expected to add more pressure on its economy.

The US and UK have already banned Russian crude imports while Europe, which imports more than 40 per cent of its natural gas and 30 per cent of its oil from Russia, has pledged to reduce its reliance on Moscow for its energy needs.

We got through a crisis like no other with the pandemic, and we are now in an even more shocking territory. The unthinkable happened: we have a war in Europe

Kristalina Georgieva,
IMF managing director

On Friday, Moody's Investors Service downgraded the ratings of 95 non-financial Russian companies cutting Russia’s sovereign deeper into “junk”, or non-investment grade territory, twice in two weeks.

The IMF has also raised concerns over Russia’s ability to service its debt, joining a growing number of rating agencies and investors who expect an imminent debt default by Russia.

“Well, the Russian default is no more an improbable event,” Ms Georgieva said. “In this case, with Russia, it is not that Russia doesn't have money. Russia cannot use this money.”

The Russian central bank has already put capital control measures in place that are expected to restrict cross-border payments, including debt service on government bonds, according to Moody’s.