IMF: Ukraine Conflict Can ‘Fundamentally Change’ Global Economic & Political Order

The International Monetary Fund (IMF) stated on Tuesday that Russia’s invasion of Ukraine will harm the whole global economy by lowering growth and advancing inflation, and might fundamentally change the global economic order in the long run.
In addition to human suffering and record refugee flows, the conflict is raising food and energy costs, driving inflation and eroding the value of salaries, as well as affecting commerce, supply networks, and remittances in Ukraine’s surrounding countries, as per an IMF blog post.
It is also eroding company confidence and causing investor uncertainty, which will cause asset values to fall, financial conditions to tighten, and capital outflows from developing countries to transpire, according to the report.

“The war is a severe blow to the global economy,” the IMF stated, adding that it will hamper growth and boost prices.

Officials from the International Monetary Fund have already stated that they expect the Fund’s earlier prediction of 4.4 percent global economic growth in 2022 to be revised downward. It was hinted in Tuesday’s article that their regional growth predictions will be lowered downward as well.

On April 19, the IMF is expected to provide new predictions.

The IMF expected increased pressure on countries with direct trade, tourist, and financial exposures, noting a higher risk of upheaval in various regions, ranging from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia.

At the same time, food instability in portions of Africa and the Middle East was certain to worsen, with Egypt importing 80 percent of its wheat from Russia and Ukraine.

“If energy commerce shifts, supply chains re-configures, payment networks fragments, and governments reassess reserve currency holdings,” it warned, “the conflict may radically change the global economic and geopolitical order.”

The IMF expected substantial recessions in Ukraine and Russia, as well as natural gas import interruptions and larger supply chain disruptions in Europe. As a result, Eastern Europe, which has taken in the majority of the 3 million people who have fled Ukraine, would face greater funding costs.

According to the IMF, nations in the Caucasus and Central Asia with close trade and payment system ties to Russia would be disproportionately affected by the Russian recession and sanctions imposed since the invasion of Ukraine, which have stifled commerce, remittances, investment, and tourism. The acts of Russia in Ukraine are referred to as a “special operation” by Moscow.

Worsening external financing conditions in the Middle East and Africa may encourage capital outflows and contribute to economic headwinds for countries with high debt levels and big financing requirements, according to the IMF.

Higher energy and food costs, less tourism, and difficulties gaining access to international financial markets would pose a challenge to countries in Sub-Saharan Africa, which imports 85 percent of its wheat, with a third coming from Russia or Ukraine.

The key channels for spillovers in the Western Hemisphere are food and energy costs, with high commodity prices likely to accelerate already high inflation rates in Latin America, the Caribbean, and the United States.