## execsum

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### Major economic impact of the war in Ukraine
- The war has triggered a costly humanitarian crisis and will contribute to a significant slowdown in global growth in 2022.
- A severe double-digit drop in GDP for Ukraine and a large contraction in Russia are more than likely.
- Worldwide spillovers are occurring through commodity markets, trade, and financial channels.
- The invasion has contributed to economic fragmentation as a significant number of countries sever commercial ties with Russia and risks derailing the post-pandemic recovery.
- The conflict adds to pandemic-related strains; recent lockdowns in key manufacturing and trade hubs in China will likely compound supply disruptions elsewhere.
- Baseline assumptions include: the conflict remains confined to Ukraine; further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline); and the pandemic’s health and economic impacts abate over the course of 2022.

### Growth projections and uncertainty
- Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023.
- This projection is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update.
- Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term.
- With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026.
- Scarring effects are expected to be much larger in emerging market and developing economies than in advanced economies—reflecting more limited policy support and generally slower vaccination—with output expected to remain below the pre-pandemic trend throughout the forecast horizon.
- Unusually high uncertainty surrounds the forecast; downside risks dominate, including: worsening of the war, escalation of sanctions on Russia, a sharper-than-anticipated deceleration in China as a strict zero-COVID strategy is tested by Omicron, and a renewed flare-up of the pandemic from a new, more virulent virus strain.
- The war has increased the probability of wider social tensions because of higher food and energy prices.

### Inflation outlook and risks
- Inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures.
- For 2022, inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected in January.
- A gradual resolution of supply-demand imbalances and a modest pickup in labor supply are expected in the baseline, eventually easing price inflation, but significant downside and upside risks remain.
- Worsening supply-demand imbalances and further increases in commodity prices could lead to persistently high inflation, rising inflation expectations, stronger wage growth, and force central banks to react faster—raising interest rates and exposing debt vulnerabilities, particularly in emerging markets.

### Policy trade-offs and monetary policy guidance
- The war has exacerbated two key trade-offs:
  - Tackling inflation versus safeguarding the recovery.
  - Supporting the vulnerable versus rebuilding fiscal buffers.
- Tackling inflation:
  - Drivers of inflation are often beyond central banks’ control, but price pressures are increasingly broad-based.
  - The transmission of the war shock will vary across countries depending on trade and financial linkages, exposure to commodity price increases, and the strength of preexisting inflation.
  - Tighter monetary policy will be appropriate in many cases to check cyclical feedbacks between prices, wages, and inflation expectations.
  - Central banks should remain vigilant to impacts on inflation expectations and communicate clearly; a well-telegraphed, data-dependent approach to adjusting forward guidance—including the unwinding of record-high central bank balance sheets and the path for policy rates—is key to maintaining policy credibility.

### Fiscal policy guidance amid rising interest rates and cost-of-living pressures
- Fiscal policy should depend on exposure to the war, the state of the pandemic, and the strength of the recovery.
- Following large pandemic-era fiscal expansions, debt levels are at all-time highs and governments are more exposed to higher interest rates.
- Priorities:
  - Governments should prioritize spending with well-targeted support for the vulnerable—including refugees, those struggling because of commodity price spikes, and those affected by the pandemic.
  - Where fiscal space permits and when monetary policy is constrained at the national level (for instance by the Effective Lower Bound or in a monetary union), broader fiscal support may be warranted depending on the severity of the decline in aggregate demand.
  - Support should be deployed in ways that avoid exacerbating supply-demand imbalances and price pressures.
  - Where fiscal space is more limited, governments must balance consolidation with prioritizing essential expenditures.
- Authorities should be vigilant regarding private sector vulnerabilities to rising interest rates (topic explored in Chapter 2).

### Structural and medium-term policy priorities
- Policymakers should not lose sight of longer-term goals amid immediate crises.
- Recommendations:
  - Harness positive structural change from pandemic disruptions, including embracing digital transformation.
  - Retool and reskill workers to meet labor market transformation challenges (Chapter 3 examines facilitating policies).
  - Implement carbon pricing and fossil fuel subsidy reform to support transition to cleaner production less exposed to fossil fuel prices—a priority given the war’s fallout on the global energy market.
  - Anticipate labor market reallocation across occupations and sectors during the green energy transition.

### Multilateral response and global cooperation
- Multilateral efforts are essential to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic.
- As volatility, humanitarian spending pressures, and tighter financial market conditions increase, the likelihood that some countries will become financially constrained rises.
- Multilateral institutions offer a critical safety net by providing emergency liquidity and preventing crises from spreading.
- Where liquidity support alone is insufficient, progress toward orderly debt restructuring is essential.
- On climate: advanced economies must make real progress toward their COP26 pledges; emerging market and developing economies must extend ambition to reduce emissions.
- Pandemic response must continue: governments should use all tools to combat the virus, meet vaccination targets, and ensure equitable access to tests and treatment.

*Source: Executive Summary, WORLD ECONOMIC OUTLOOK: WAR SETS BACK THE GLOBAL RECOVERY, International Monetary Fund | April 2022*

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_Source: https://www.imf.org/-/media/files/publications/weo/2022/april/english/execsum.pdf_