The economic fallout from the war in Ukraine will reach far beyond the countries involved. In its April 2022 World Economic Outlook (WEO): War Sets Back the Global Recovery, the International Monetary Fund (IMF) cited the conflict as the primary reason for the slowing of global growth the institution now predicts. While recovery from the COVID-19 pandemic in 2021 was slightly stronger than expected, it is still in progress, with recent lockdowns in China slowing manufacturing and further disrupting supply chains. In addition, the prospect of new SARS-CoV-2 variants continues to pose a threat to the global recovery.
Anticipation of shortages in the wake of the Russian invasion of Ukraine has driven up commodities prices. The regions that will be most affected are the Caucasus and Central Asia, Europe, the Middle East, North Africa, and sub-Saharan Africa. Russia is a major global supplier of gas, metals, and oil. Russia and Ukraine are large producers of corn and wheat, together accounting for almost 30% of the worldΓÇÖs wheat exports. The price hikes of these commodities are anticipated to exacerbate inflation; the WEO has increased 2022 inflation projections for advanced economies, and emerging market and developing economies to 5.7% and 8.7%, respectively.
The consequences of the war to Ukraine’s economy are unsurprising—it will take years for the country to rebuild from the deaths, destruction, and fleeing of its people brought on by the invasion—and the WEO predicts a 35% plunge in the Ukrainian economy for 2022. Trade and financial sanctions will act to depress Russian GDP by 8.5%. Many European countries have begun to reduce their reliance on Russian energy, an act that will continue to affect the Russian economy beyond the short term. The war is expected to affect Europe most via higher energy prices, with emerging and developing European economies also experiencing trade disruptions. In advanced European economies, some industries already suffering supply-chain interruptions are predicted to be further hampered by the war and sanctions.
Higher food prices—especially that of wheat—restrict growth in the Caucasus and Central Asia, the Middle East, and North Africa. The Middle East and North Africa are also expected to be affected by a decrease in tourism. However, oil exporting countries will benefit from higher energy prices. On balance, the WEO anticipates 4.6% GDP growth for the Middle East and Central Asia, up 0.3 percentage point from the January projection. Similarly, the economy of sub-Saharan Africa is largely subject to the warΓÇÖs impact on food and fossil fuel prices. Although political and social unrest also depress the outlook for the region, its economy is nonetheless predicted to expand by 3.8% in 2022, 0.1 percentage point higher than forecast in January.
The main influence on the Asian economy continues to be China. Recent COVID-related lockdowns and restrictions, as well as weak urban employment recovery, have impaired manufacturing, trade, and private consumption in China. Real estate investment has also lost some of its momentum. For the Asian region as a whole, weaker demand and higher commodities pricing will slow growth.
Tightening monetary policy to counter inflation is predicted to suppress growth in North America, with war-related trade disruption and lower demand from the US also coming into play for the US and Canada, respectively. Latin America and the Caribbean are less tied to Europe but will also be subject to Inflation and tightening of financial policy.
With so much uncertainty in the state of international affairs, the WEO points out the challenges of making quantitative predictions for the world’s economy. Nonetheless, some means by which the war and sanctions will influence the global economy can be determined.