Russia-Ukraine conflict major blow to global economy, says IMF

The conflict between Russia and Ukraine is a major blow to the global economy that will hurt growth and raise prices, the International Monetary Fund analysts said in a blog.

They said impacts will flow through three main channels.

One, higher prices for commodities like food and energy will push up inflation further, in turn eroding the value of incomes and weighing on demand.

Two, neighboring economies, in particular, will grapple with disrupted trade, supply chains, and remittances as well as a historic surge in refugee flows.

And three, reduced business confidence and higher investor uncertainty will weigh on asset prices, tightening financial conditions and potentially spurring capital outflows from emerging markets.

Russia and Ukraine are major commodities producers, and disruptions have caused global prices to soar, especially for oil and natural gas. Food costs have jumped, with wheat, for which Ukraine and Russia make up 30 percent of global exports, reaching a record.

Beyond global spillovers, countries with direct trade, tourism, and financial exposures will feel additional pressures. Economies reliant on oil imports will see wider fiscal and trade deficits and more inflation pressure, though some exporters such as those in the Middle East and Africa may benefit from higher prices.

Steeper price increases for food and fuel may spur a greater risk of unrest in some regions, from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food insecurity is likely to further increase in parts of Africa and the Middle East.

“Gauging these reverberations is hard, but we already see our growth forecasts as likely to be revised down next month when we will offer a fuller picture in our World Economic Outlook and regional assessments,” the analysts said.

Longer-term, the war may fundamentally alter the global economic and geopolitical order should energy trade shift, supply chains reconfigure, payment networks fragment, and countries rethink reserve currency holdings. Increased geopolitical tension further raises risks of economic fragmentation, especially for trade and technology.

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