IMF: The Ukraine invasion followed by global energy warfare are ought to cast a gloomy atmosphere for the global economy in the days to come, situations will further worsen in European countries- the International Monetary Fund(IMF) has predicted a very terrible phase if geopolitical situations do not improve in time.
The global economic viewpoint is even gloomier than projected in the previous month; the International Monetary Fund (IMF) has echoed its serious concern, referring to a firm deterioration in purchases in recent months. It blamed the shady stance on the shrinking monetary policy generated by persistently high and broad-based inflation, weak growth momentum in China, and ongoing supply disruptions and food insecurity caused by Russia’s invasion of Ukraine.
IMF reduced its global growth forecast for 2023 to 2.7 per cent from a previous forecast of 2.9 per cent.
In a report prepared on behalf of the Group of 20 leaders’ summit in Indonesia, the IMF stated that the recent high-frequency indicators “confirm that the prospects are gloomier”, particularly in Europe.
Most of the G-20 major economies have indicated shrinking economic activity, especially in the manufacturing and services sector, while inflation is set to remain exorbitantly high, as per purchasing manager’s indices.
“The challenges that the global economy is facing are enormous and worsening economic indicators point to further deterioration,” the IMF said, adding that the current geopolitical environment was “unusually uncertain”.
IMF has further cautioned that the upward trend of share earlier this year of G-20 countries has fallen to levels that signal severe contraction,” and added that global fragmentation added to “a confluence of downside risks”.
A worsening energy crisis in Europe would severely harm growth and raise inflation, while prolonged high inflation could prompt larger-than-anticipated policy interest hikes and 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 blocks, the Asian economy is vulnerable to further trading shocks and incurs large losses.
IMF lowered its forecasts for Asia-Pacific regional growth to 4 per cent in 2022 and 4.3 per cent in 2023, well below the average rate of 5.5 per cent seen over the past 20 years. Rising interest rates, the spillover 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, employment, growth and inflation.
Asia loses more than the world
Trade fragmentation poses a significant downward risk for the global economy and notably the Asia economy, everyone risks losing but Asia risks losing more because they are so integrated into global supply chains.
In such a scenario, trade-related permanent annual losses are estimated at 1.5 per cent of global output, with Asia and the Pacific regions set to lose over 3 per cent.
Asia has long been the world’s factory floor due to its domination of manufacturing and trade, with the IMF estimating value-added products from the region met about 50 per cent of North American demand and 35 per cent of European demand in 2018, up from 41 per cent and 28 per cent in 2000. The region accounts for almost 50 per cent of global demand in key commodities such as mineral fuels and green transition minerals.
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