Global economic outlook faces “tough year ahead”

May 24, 2022 - 19:50

The head of the International Monetary Fund (IMF) says the war in Ukraine has worsened the global economic outlook and a recession may loom for more vulnerable countries.

Kristalina Georgieva predicted that 2022 would be a tough year and refused to rule out a global recession if conditions drastically worsened.

Speaking on the sidelines of the annual meeting of the World Economic Forum in Davos, Switzerland, Georgieva said a global recession was not being forecast by the IMF “at this point,” but added, “It doesn’t mean one is out of the question.”

The IMF managing director says the organization had recently downgraded the growth prospects for 143 of its member states, which represent 80 percent of global output.

“The horizon has darkened,” she said, pointing out that the impact of the war in Ukraine was being intensified by a tightening of financial conditions “2022 is going to be a tough year.” She said.

Along with other attendees at Davos, the IMF head highlighted the risks of soaring food prices. Georgieva said that over the past week there had been a sense that the global economy was heading into tough times saying “food prices continue to go up, up, up, up”.

She said: “We can shrink the use of petrol when growth slows down but we have to eat every day. The anxiety about access to food at a reasonable price, globally, is hitting the roof.”

The IMF is now predicting global growth of 3.6 percent this year, and Georgieva says there is a long path for that to change for the better.

“What we may see is recession in some countries that are weak, to begin with. They haven’t recovered from the Covid crisis. They’re highly dependent on imports from Russia, of energy or food, and they have a somewhat weaker environment already.”

“All of this is making further downgrades not out of the question and for some countries, there is now an increased risk of recession,” she said. 

Economic experts are back in Davos after a two-year hiatus due to the pandemic.

Jane Fraser, the chief executive of the U.S. investment bank Citigroup also in Davos, said that Europe is looking particularly vulnerable. 

“Europe is right in the middle of the storms from supply chains, from the energy crisis, and obviously just the proximity to some of the atrocities that are occurring in Ukraine,” she said.

Over the past few months, gloom has descended on financial markets with many analysts, business managers and politicians predicting the resilience being displayed in much of the economy so far will not last long. According to surveys, there is now much more pessimism than before. 

Inflation has hit the roof across the West and beyond with wages falling amid rising food insecurity and higher energy prices.

The crisis in Ukraine has also exacerbated the disruption to global supply chains and higher interest rates, raising fears that the global economic recovery from the coronavirus pandemic is about to stall.

Speaking at a panel in Davos, Robert Habeck, Germany’s vice-chancellor and economy minister, said “I’m really afraid that we are running into a global recession, with a tremendous effect not only on [the climate], but on global stability.” Jane Fraser, chief executive of Citi, said there would be a recession in Europe and a downturn in the rest of the world. 

Speaking to journalists in Moscow, Kremlin spokesman Dmitry Peskov says the unprecedented sanctions imposed on Russia are the real cause of a looming global food crisis, not Moscow’s actions.

Peskov says Russian President Vladimir Putin had agreed with UN Secretary-General Antonio Guterres’ opinion that there was a risk of global hunger. 

“That is true. But when it comes to grain, the president said that the imposed sanctions and restrictions led to the collapse that we are now witnessing,” he said.

Western countries, spearheaded by the U.S. and the UK along with European Union nations, have imposed unprecedented punitive measures on Russia in response to its military operation in Ukraine.

Guterres had asked Moscow not to prevent food exports from Ukrainian ports but also made clear that fertilizers and food products from Russia should be allowed to reach the world markets without any obstacles.

Peskov noted that Moscow has not prevented Kyiv from using the railway to export grain to Poland. He also highlighted that Warsaw has been using trains to deliver weapons to Kyiv and that “no one prevents them from exporting grain back on the same trains.”

The Kremlin spokesman also alleges Ukrainian forces have been planting naval mines in the Black Sea obstructing maritime movement. 

According to Peskov, such actions make trade and shipping “virtually impossible” and special measures are required to resume navigation.

“And when it comes to the alternative routes, again, we are not the source of the problem which is causing the threat of world hunger. The sources of this problem are those who imposed sanctions, and the sanctions themselves,” Peskov added.

The Russian Deputy Foreign Minister, Andrey Rudenko, has also hit out at allegations that Moscow is blocking the export of Ukrainian grain in the Black Sea ports saying they were “nothing more than speculation.”

“All restrictive measures that were introduced against Russian exports should be canceled,” Rudenko said.

Russia and Ukraine are major wheat suppliers, accounting for around 30 percent of global exports.

The war in Ukraine and sanctions on Russia have significantly increased global wheat prices. Moscow has said it will provide wheat for it’s own population first before exporting the product in the face of heavy Western sanctions. 

Meanwhile, U.S. Defense Secretary Lloyd Austin has announced that some 20 countries had declared new military assistance packages for Ukraine during a virtual meeting with Washington’s allies that was aimed at coordinating weapons for Kyiv.

"Many countries are donating critically needed artillery ammunition, coastal defense systems and tanks, and other armored vehicles," Austin said. Others, he said, are offering training for Ukraine's military.

During a Pentagon press briefing Austin added that he is “pleased to report that we're intensifying our efforts and, moving forward, we'll continue to deepen our coordination and cooperation so that Ukraine can sustain and strengthen its battlefield operations, our combined efforts will also fortify and modernize Ukraine's armed forces, to help them deter future Russian aggression."

Analysts have argued that pumping arms to a war zone will not help end the suffering of Ukrainians. Advocates of peace have called on both sides to engage in serious dialogue to end the war. 

Other experts say Washington is prolonging the war in order to maintain a stalemate in its bit to contain Russia’s rising economic and military power. They argue that as Russia advances in achieving it’s goals, more advanced and sophisticated weapons are being sent. 

This is while the Ukrainian President Volodmyr Zelensky says he is ready to sit down with his Russian counterpart Vladimir Putin with a view to ending the war. 

Speaking at the World Economic Forum via video link he stressed "I cannot accept any kind of meeting with anyone coming from the Russian Federation but the president.”

“And only in the case when there is one issue on the (table): stopping the war. There are no other grounds for any other kind of meeting," the Ukrainian leader added.

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