IMF: The invasion of Ukraine followed by a global energy war is expected to create a gloomy atmosphere for the world economy in the coming days, the situations will further worsen in European countries – the International Monetary Fund (IMF) has predicts a very terrible phase if the geopolitical situations do not improve over time.
The global economic outlook is even gloomier than expected the previous month; the International Monetary Fund (IMF) echoed his deep concern, citing a sharp deterioration in buying over the past few months. He blamed the shady stance on monetary policy tightening generated by persistently high and broad-based inflation, weak growth momentum in China, and continued supply disruptions and food insecurity caused by Russia’s invasion of Ukraine.
The IMF cut its global growth forecast for 2023 to 2.7% from a previous forecast of 2.9%.
In a report prepared on behalf of the Group of 20 leaders’ summit in Indonesiathe IMF points out that recent high-frequency indicators “confirm that the outlook is bleaker”, especially in Europe.
Most major G-20 economies reported decline in economic activityparticularly in manufacturing and services, while inflation is expected to remain exorbitant, according to purchasing managers’ indices.
“The challenges facing the global economy are enormous, and deteriorating economic indicators point to further deterioration,” the IMF said, adding that the current geopolitical environment was “exceptionally uncertain.”
The IMF further warned that the upward trend in the share of G-20 countries earlier this year has fallen to levels that signal a severe contraction,” and added that global fragmentation is adding to “ a confluence of downside risks”.
A worsening energy crisis in Europe would severely harm growth and increase inflation, while prolonged high inflation could lead to larger than expected interest rate hikes and a further tightening of global financial conditions. This in turn posed “increasing risks of a sovereign debt crisis for vulnerable economies”.
If the global economy fragments into rival trading blocs, the Asian economy is vulnerable to further trade shocks and suffers significant losses.
The IMF has revised down its forecast for Asia Pacific regional growth at 4% in 2022 and 4.3% in 2023, well below the average rate of 5.5% observed over the past 20 years. Rising interest rates, the fallout from Russia’s invasion of Ukraine and China’s slowdown are all hurting the outlook.
The vicious combination of trade policy uncertainty and national security tensions is creating early signs of fragmentation, a trend that will impact investment, jobs, growth and inflation.
Asia loses more than the world
The fragmentation of trade poses a significant downside risk to the global economy and especially the Asian economy, everyone stands to lose but Asia stands to lose more because it is so integrated into global supply chains.
In such a scenario, permanent annual trade-related losses are estimated at 1.5% of global production, with Asia and the Pacific regions expected to lose more than 3%.
Asia has long been the factory floor of the world due to its dominance of manufacturing and trade, with the IMF estimating that the region’s value-added products satisfied around 50% of North American demand and 35% of European demand in 2018, compared to 41% and 28 % in 2000 The region accounts for nearly 50% of global demand for key commodities such as mineral fuels and green transition minerals.