Global economic update
The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. Economic damage from the conflict will contribute to a significant slowdown in global growth in 2022. A severe double-digit drop in GDP for Ukraine and a large contraction in Russia are more than likely, along with worldwide spillovers through commodity markets, trade, and financial channels. Even as the war reduces growth, it will add to inflation. Fuel and food prices have increased rapidly, with vulnerable populations - particularly in low-income countries - most affected. Elevated inflation is already complicating the trade-offs central banks face between containing price pressures and safeguarding growth.
Interest rates are rising as central banks tighten policy, exerting pressure on emerging market and developing economies. Many countries have limited fiscal policy space to cushion the impact of the war on their economies. The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery. It has also threatened the rules-based frameworks that have facilitated greater global economic integration and added to the economic strains wrought by the pandemic.
Under these conditions, the IMF has reported its expectations that already-elevated inflation will persist for longer: projecting a 38-year high of 5.7 percent in advanced economies, accelerating to 8.7 percent in emerging market and developing economies - the fastest pace since the global financial crisis in 2008. They believe these rates are likely to then cool next year to 2.5 percent and 6.5 percent, respectively.
The latest growth forecasts for 2022 published by the IMF, predict contraction in Europe:
Other points of note:
German industrial output dropped 3.9% in March, the biggest decline since the start of the pandemic and significantly larger than economists expected.
The Fed announced it was increasing its benchmark interest rate by half a percentage point.
The European Central Bank is considering hiking interest rates in July
The Bank of England increased interest rates by 0.25 percentage points to 1%
The Reserve Bank of Australia lifted its interest rate by a larger than expected 0.25 percentage points
The Reserve Bank of India announced a surprise 0.4 percentage points rate increase
Inflation has reached a 20-year high in Turkey, with an annual rate of 70%.