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War sends shock waves through the global economy

War sends shock waves through the global economy

In a new report, the International Monetary Fund writes that conflict is undermining global economic growth. Inflation, which was initially high in many countries, is likely to be even higher.

The IMF wrote that increases in food and fuel prices will affect low-income families around the world.

Global economic growth is expected to be 3.6 percent in 2022. This is 0.8 percentage points lower than the International Monetary Fund estimated in a similar report in January.

The World Bank has also lowered its global growth forecast this year. Bank CEO David Malpass on Monday Their new estimate is 3.2 percent.

Grains, gas and minerals

The Russian invasion destroyed not only Ukrainian cities, but also the Ukrainian economy. The International Monetary Fund believes that the country’s gross domestic product will fall by 35 percent this year.

At the same time, Russia is affected by Western sanctions. The result could be an economic decline of 8.5%.

The International Monetary Fund notes that both countries are important producers of raw materials. The war hits countries’ exports and raises the prices of grain, gas, oil and minerals on the world market.

– The economic effects of war spread widely, like seismic waves from the epicenter, wrote the IMF in its World Economic Outlook.

It was announced in the context of the Spring Meetings of the International Monetary Fund and the World Bank in Washington, DC.

high price growth

Vladimir Putin sent his forces into Ukraine while the global economy was recovering from the pandemic.

Among the repercussions of the epidemic were weak supply lines, shortages of certain types of goods, and consequently high inflation. This effect is now amplified by reduced exports from Ukraine and Russia.

Inflation is expected to remain high over a longer period than previously assumed. The International Monetary Fund expects inflation to be 5.7 percent in rich countries in 2022. In developing countries, inflation may average 8.7 percent.

Both estimates are higher than the corresponding figures in the International Monetary Fund’s January report.

A possible long-term scenario is that the global economy will be divided into several geopolitical blocs with different payment systems, reserve currencies and technological parameters. According to the International Monetary Fund, the price of this fundamental change will be exorbitant.

difficult balancing

High inflation may exacerbate the dilemmas facing the world’s central banks. Should they invest in sharp jumps in interest rates to curb inflation, or in lower interest rates for growth and employment?

The IMF also points out that the world faces other long-term challenges. Climate emissions must be reduced to reduce the risk of catastrophic weather events. And workers need to be retrained to prepare for a more digital working life.

Commodity producers can benefit from higher energy and food prices, writes the International Monetary Fund. But Norway’s economic growth forecast is also somewhat lower than a similar estimate last fall.

At the time, the International Monetary Fund estimated growth of 4.1 percent this year, while the forecast is now at 4.0 percent.

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