## Foreword ## Source details **Canonical URL:** [Foreword](https://www.imf.org/-/media/files/publications/weo/2022/april/english/foreword.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2022/april/english/foreword.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2022/april/english/foreword.pdf.json) --- ### Overview - Global economic prospects have worsened significantly since the January World Economic Outlook forecast. - The outlook deterioration is largely because of Russia’s invasion of Ukraine and the sanctions aimed at pressuring Russia to end hostilities. - The crisis unfolds while the global economy had not yet fully recovered from the COVID-19 pandemic, with a significant divergence between advanced economies and emerging market and developing ones. - Frequent and wider-ranging lockdowns in China—including in key manufacturing hubs—have slowed activity and could cause new bottlenecks in global supply chains. - Higher, broader, and more persistent price pressures led to a tightening of monetary policy in many countries. - Overall risks to economic prospects have risen sharply and policy trade-offs have become ever more challenging. ### Growth and inflation projections - Global growth is projected at 3.6 percent in 2022 and 2023—0.8 and 0.2 percentage points lower than in the January forecast, respectively. - The downgrade largely reflects the war’s direct impacts on Russia and Ukraine and global spillovers. - Inflation is now projected to remain elevated for much longer than in the previous forecast, in both advanced and emerging market and developing economies. - In some advanced economies, including the United States and some European countries, inflation has reached its highest level in more than 40 years. ### Country and regional impacts - Both Russia and Ukraine are projected to experience large GDP contractions in 2022. - Ukraine’s severe collapse is a direct result of the invasion, destruction of infrastructure, and exodus of its people. - Russia’s sharp decline reflects sanctions, severing of trade ties, greatly impaired domestic financial intermediation, and loss of confidence. - The economic effects of the war spread mainly through commodity markets, trade, and financial linkages. - Russia is a major supplier of oil, gas, and metals; Russia and Ukraine are major suppliers of wheat and corn. - The current and anticipated decline in supply has already driven commodity prices up sharply. - Regions most affected include Europe, Caucasus and Central Asia, Middle East and North Africa, and sub-Saharan Africa. - Food and fuel price increases will hurt lower-income households globally—including in the Americas and Asia. - The displacement of more than 4 million Ukrainian people to neighboring countries, especially Poland but also Romania, Moldova, and Hungary, will add to economic pressures in the region. - Shortfalls in specialized inputs from Russia and Ukraine are already impacting European car manufacturers. ### Supply shocks and global value chains - The war adds to a series of supply shocks over the pandemic, contributing to shortages beyond energy and agriculture. - Production disruptions in one country can quickly cascade globally through integrated supply chains. - Some supply shortages are expected to last into 2023, although bottlenecks may ease as production elsewhere responds and new capacity becomes operational. - Chapter 4 highlights that reshoring policies could leave economies more exposed to supply disruptions, not less. ### Financial and fiscal implications - Immediately after the invasion, capital outflows increased markedly from emerging market and developing economies, tightening financial conditions for vulnerable borrowers and net importers of commodities, and putting downward pressure on the currencies of the most exposed countries. - So far, repricing has been mostly orderly, but the April 2022 Global Financial Stability Report highlights several financial fragility risks. - A wider range of emerging market economies could come under pressure if global monetary tightening accelerates, especially in the United States, or if markets reprice more aggressively. - Fiscal space was already eroded in many countries by COVID-related spending; debt levels have risen significantly. - Extraordinary fiscal support was expected to be removed in 2022–23; the war and rising global interest rates will further reduce fiscal space, especially for oil- and food-importing emerging market and developing economies. - Chapter 2 shows non-financial corporate and household leverage increased in many countries during the pandemic, potentially creating credit market vulnerabilities as interest rates and risk premia rise. ### Policy recommendations and priorities - Central banks will need to adjust monetary stances more aggressively should medium- or long-term inflation expectations drift from targets or core inflation remain persistently elevated. - Clear central bank communications on drivers of inflation and forward guidance on monetary policy, supplemented—when appropriate—with capital flow management measures in line with the IMF’s revised Institutional View on capital flows, will be essential to minimize disruptive adjustments. - Governments should provide well-targeted support for: - refugees displaced by conflict, - households squeezed by higher food and fuel prices, and - those affected by the pandemic. - Social and health spending should continue to be prioritized. - Fiscal initiatives should be embedded in a medium-term framework with a clear, credible path for stabilizing public debt to create room to deliver needed support. - Policymakers should ensure the global financial safety net operates effectively to help vulnerable economies adjust as interest rates rise, including adequate liquidity support and, where required, comprehensive sovereign debt restructuring. - The G20’s Common Framework for Debt Treatments offers guidance but has yet to deliver; absence of an effective and expeditious framework is a fault line in the global financial system. ### Long-term goals and multilateral cooperation - Attention must be maintained on longer-term goals even while cushioning the immediate impacts: - Reskilling workers for digital transformation and facilitating labor market transformation necessary to achieve net zero emissions (discussed in Chapter 3). - A comprehensive approach combining carbon pricing, investment in renewables, and compensation for those adversely affected by the transition to hasten the green transition. - Improving resilience of global supply chains (discussed in Chapter 4). - Multilateral cooperation remains essential: - Immediate priority: find a peaceful resolution to the war. - Close the gap between stated climate ambitions and policy actions. - An international carbon price floor differentiated by country income levels and multilateral finance initiatives will be required. - Secure equitable worldwide access to the full complement of COVID-19 tools—tests, therapies, and vaccines—and address other global health priorities. - Preventing a more permanent fragmentation of the world economy into geopolitical blocks is critical; such fragmentation would entail high adjustment costs, long-run efficiency losses, and challenge the rules-based framework governing international economic relations for the last 70 years. ### Uncertainty and scenarios - Uncertainty around projections is considerable and well-beyond the usual range because of the unprecedented nature of the shock. - Growth could slow significantly more while inflation could be higher than expected if sanctions extend to a broader volume of Russian energy and other exports; these possibilities are explored in a Scenario Box in Chapter 1. - The pandemic continues to pose risks: more lethal variants that escape vaccines or immunity could prompt new lockdowns and production disruptions. *Foreword — International Monetary Fund | April 2022* --- _Source: https://www.imf.org/-/media/files/publications/weo/2022/april/english/foreword.pdf_