The outlook for the global economy has “significantly worsened” and could worsen further, the IMF Managing Director said on Wednesday, citing Russia’s war in Ukraine and the resulting rapid inflation that threatens widespread hunger and poverty.
The warning came just months after the IMF had already cut its global growth forecast for 2022 and 2023.
The war in Ukraine erupted as the world struggled to recover from the ongoing impact of the Covid-19 pandemic and has triggered an acceleration in inflation that threatens the gains of the past two years.
The international anti-crisis lender “foresees a further decline in global growth” in 2022 and 2023, Kristalina Georgieva said in a blog post published ahead of the G20 finance and central bank ministers’ meeting scheduled for Friday and Saturday in Bali.
“It will be a tough 2022 – and possibly an even tougher 2023 with an increased risk of a recession,” she wrote.
Later this month, the IMF is due to release an updated global economic outlook that Georgieva said would further lower global growth estimates from 3.6 percent in April.
“We have warned that the situation could worsen given potential downside risks. Since then, some of these risks have materialized – and the multiple crises the world is facing have intensified,” she said.
The outlook remains “highly uncertain” and Georgieva warned that the poorest would be hardest hit.
The risk of “social instability” also increased due to rising food and energy prices.
After a decade of low inflation, prices around the world rose amid strong demand for goods that outpaced supply as the economy began to return to normal, but the Russian invasion of Ukraine in late February and sanctions imposed on Moscow sent fuel prices skyrocketing and food.
Ukraine and Russia are major grain producers, and Russia is also a key source of energy for Europe and has cut natural gas supplies to the region.
Inflation also complicates policy making: major central banks raise interest rates to keep prices down, but this increases the cost of borrowing for emerging market and developing countries that face high debt burdens.
But Georgieva said fighting price increases was critical, despite the risk of a recession.
“Acting now will be less painful than acting later.”
She said offsetting the effects of the war and the pandemic is a top priority that can only be addressed through “multilateral” financial assistance and debt relief.
“Debt reduction is an urgent need, especially in emerging market and developing countries with foreign currency (FX) liabilities, which are more vulnerable to tightening global financial conditions.”
Georgieva stressed that the top priority is to reduce inflation, including by cutting government spending, which will help the efforts of the central bank.
She urged the G20 to intensify “coordinated international action”, including richer countries providing needed assistance to poorer ones.
Georgieva warned that most of the world’s economies are “completely cut off” from global markets due to financial pressure and are not insured by a large domestic market.
“They call on the international community to take bold action to support their people. This is a call we must heed.”