WASHINGTON — The world economy has entered a period of intense uncertainty, as a capricious pandemic and the fallout from Russia’s war in Ukraine combine to fuel rapid inflation and weigh on an already fragile global recovery.
These colliding challenges are confronting policymakers and central bankers in the United States and Europe as they seek to bring down inflation without slowing growth so much that their economies tip into recession. In the last week, international organizations and think tanks have begun slashing their forecasts for growth and trade as they assess the war’s disruptions to global energy, food and commodity supplies, as well as China’s sweeping lockdowns to contain a renewed coronavirus outbreak.
The pall over the world economy was underscored Tuesday by the International Monetary Fund, which said in its World Economic Outlook that global output was expected to slow this year to 3.6 percent, from 6.1 percent in 2021. That is a downgrade from a January forecast of 4.4 percent growth this year.
“Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said at a press briefing Tuesday. “This crisis unfolds as the global economy has not yet fully recovered from the pandemic.”
The impact of Russia’s war on the global economy will be a central topic for policymakers convening in Washington this week for the spring meetings of the IMF and the World Bank.
As the meetings got underway, policymakers grappled with how to maintain pressure on Russia while keeping the economic recovery on track and protecting the world’s poor from rising prices. While some countries that export commodities will benefit from a period of higher fuel and food prices, for most economies the disruptions weigh heavily.
“The war has made an already dire situation worse,” Treasury Secretary Janet Yellen said in a speech about rising food insecurity Tuesday. “Price and supply shocks are already materializing, adding to global inflationary pressures, creating risks to external balances, and undermining the recovery from the pandemic.”
Yellen plans to attend an opening session Wednesday that will include Ukraine’s finance minister, as the United States looks to stand with allies in opposition of Russia’s invasion, a Treasury official said. However, Yellen will not attend some G-20 sessions, such as those on international financial architecture and sustainable finance, if Russians are participating.
Gourinchas said the war was slowing growth and spurring inflation, which he described as a “clear and present danger” for many countries. He added that disruptions to Russian supplies of oil, gas, and metals, along with Ukrainian exports of wheat and corn, will ripple through commodities markets and across the global economy “like seismic waves.”
He acknowledged that the trajectory of the global economy would depend on how the war proceeded and the ultimate breadth of the sanctions that the United States and its allies in Europe and Asia imposed on Russia.
“Uncertainty around these projections is considerable, well beyond the usual range,” Gourinchas said. “Growth could slow down further, while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.”
Ukraine and Russia are facing the most dire economic consequences from the war. The IMF expects the Ukrainian economy to contract by 35 percent this year, while Russia’s economy is projected to shrink by 8.5 percent. Gourinchas noted that Russian authorities have so far managed to contain a collapse of its financial system and avoided bank failures but that further sanctions targeting Russia’s energy industry could have a significant impact on its economy.
The sweeping sanctions that America and its allies have already imposed on Russia are the main factor contributing to the downward revision of the IMF’s global growth outlook, Gourinchas said, adding that a tightening of restrictions that targets Russian energy exports would represent an “adverse scenario” that would further slow output around the world.
Rising prices around the world show no signs of abating, the IMF said, even if supply chain problems ease. It expects inflation to remain elevated throughout the year, projecting it at 5.7 percent in advanced economies and 8.7 percent in emerging markets. Inflation hit 8.5 percent in the United States last month, the fastest 12-month pace since 1981.
Other international organizations and research groups have also pared back their global growth forecasts. Economists at the Peterson Institute for International Economics, a Washington think tank, expect global growth to decline from a rapid 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023.
The World Bank also expressed alarm this week about the state of the global economy, warning that the lingering pandemic, COVID-19 lockdowns in China, and higher inflation could amplify income inequality and poverty rates. It lowered its 2022 growth forecast to 3.2 percent from 4.1 percent.
“I’m deeply concerned about developing countries,” David Malpass, the World Bank president, said Monday. “They’re facing sudden price increases for energy, fertilizer, and food, and the likelihood of interest rate increases. Each one hits them hard.”
According to the Bank of International Settlements, more than half of emerging economies have inflation rates above 7 percent. And 60 percent of “advanced economies,” including the United States and the euro area, have inflation above 5 percent, the largest share since the 1980s, the bank said.
In Britain, inflation climbed to 7 percent in March, the highest level in 30 years.
An April 12 survey of global investors by BofA Securities found that more than two-thirds were pessimistic about global growth prospects in the months ahead.