Inflation should exceed 12% this year in the euro area, particularly because of the impact of the war in Ukraine, provides for the institution, which also agrees with the high level of public debts from emerging countries.
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Increased inflation and global growth. The International Monetary Fund (IMF) lowered, on Tuesday, April 19, its global growth forecast to 3.6% for 2022, declining 0.8 points compared to those of January. A revision justified by the war in Ukraine, the sanctions against Russia and the confines implemented in China to stem the pandemic of COVID-19.
The institution located in Washington also anticipates higher and longer inflation than expected. The war in Ukraine will disrupt supply chains, barely discount disorganizations of the last two years related to factory closures, on the rise in the price of maritime freight and the congestion of the ports. These new disturbances will mostly affect wheat trade (including Ukraine and Russia provide 30% of global procurement) as corn, and increase the price of raw materials. “The magnitude of these changes depends not only on the decline in exports due to the conflict and sanctions, but also the elasticity of global supply and demand”, analyzes the IMF, which considers that the reserves of Other countries can be more easily used for oil than for gas.
The countries of the euro area are among the most affected by the economic shock of the war in Ukraine, because of their proximity: consumer prices should increase by 12.6% in 2022, at comparable levels to those observed in South America or the Middle East, and the increase in GDP is strongly reviewed, at 2.8%, down 1.1 point versus the forecast of January.
“Seismic waves”
In comparison, growth in the United States is reduced by only 0.3 percentage points, mainly due to curing of monetary policy and a decline in activity at its economic partners. “The economic effects of war propagate by far – like seismic waves that depart from the epicenter of an earthquake – mainly through the markets of raw materials, trade and financial flows”, Written the new economist leader of the IMF Pierre-Olivier Gourinchas, in his introduction to forecasts.
“Seismic waves” can be all the more devastating as the international financial situation is fragile. “The tightening of financial conditions will highlight the vulnerabilities of sovereign and private borrowers,” warns the IMF. The war in Ukraine complicates the work of central banks. If they increase their rates too brutally in the great economies developed, they could trigger a capital flight from emerging countries with, at the key, a financial crisis. And they could also affect the recovery of the activity.
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