The war in Ukraine comes at a time when many countries are struggling with rising inflation and soaring debts, and are trying to move past the difficult phase of the coronavirus pandemic, top global leaders told an online panel on Thursday.
They called for a unified effort and a multilateral approach to respond to the economic crisis and contribute to the reconstruction of economies devastated by the pandemic and war.
“Last year we were doing quite well at 6.1 per cent growth and we were projecting slightly less but still high level of growth at nearly 5 per cent for this year,” said Kristalina Georgieva, Managing Director of the International Monetary Fund.
“But the Omicron virus forced us to downgrade the outlook for the first time and then Russia’s war in Ukraine led to the second downward revision.
"Further revisions depend on how long the war will last and how effectively policymakers will deal with inflation without slowing down the growth.”
This week, the IMF projected global growth at 3.6 per cent in 2022 and 2023, revising the figures down 0.8 and 0.2 percentage points from its January forecast.
The revision largely reflects the global spillover of Russia’s military offensive in Ukraine and its devastating effect on both of their economies.
But Ms Georgieva said we are still in the “positive trajectory”.
“The growth projection for this year is 3.6 per cent that was the average growth rate between 2011 and 2019 … we have only handful of countries in the negative trajectory,” she said.
Some of those countries include war-devastated Ukraine, which is shrinking by nearly 40 per cent, and Russia, which is 11 per cent below the October projections, the Washington-based fund says.
The timeline for emerging markets and developing economies to return to the pre-pandemic growth projections is also dismal, Ms Georgieva said.
By 2026, the emerging market and developing economies will be still 6 per cent below their 2019 projections, she said.
There has been a “haircut to growth projections and rise in inflation numbers”, said Christine Lagarde, President of the European Central Bank.
Ms Lagarde said Russia’s war in Ukraine will gradually cause harm throughout the world.
“It is causing harm predominantly in Europe at the moment but there will be ripple effects going way beyond Europe," she said.
"Geography plays a role. Ukraine is literally next door to Europe and we are seeing [an influx of] refugees in many of the European countries and we have to support them.
“It is particularly saddening to see that the recovery that we are embarking on is being stalled to a certain degree."
US Federal Reserve Chairman Jerome Powell backed the global sanctions imposed against Russia for its invasion.
“The US economy is a bit more remote from the immediate effects of the war compared to Europe, for example, but they will come in the form of upward pressure on inflation and downward pressure on the output,” Mr Powell said.
“But the US economy is very strong and we are having a strong growth this year. [The] labour market is extraordinarily tight at the moment.
"[The] big issue we are focused up on is inflation and to getting inflation back down to our 2 per cent goal."