IMF warns of threat of inflation for world economy from Russia war; UK to face worst shock

The International Monetary Fund on Tuesday, April 19 warned the world about the threat of the rising inflation due to the ongoing Russia-Ukraine war. The global monetary body cautioned the nations to be vary of the “clear and present” danger of the rising commodity prices and supply-demand imbalances in its new growth forecast. “Many central banks, such as the Federal Reserve, had already moved toward tightening monetary policy,” said the IMF in its report on Tuesday. 

“War-related disruptions amplify the pressures. We now project inflation will remain elevated for much longer. The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policymakers,” the International Monetary Fund emphasised on April 19. 

UK growth rate 'slowest' among all Group of Seven nations

In its wide-ranging report, the IMF said that the rate of inflation in the United States and some of the European countries has reached its highest level in more than 40 years, particularly in the context of the labour markets. It went on to add that Britain, more specifically, faces the worst inflation shock among the world’s major economies with effects that are slated to last for nearly two years. 

UK’s economy is on the way to be 1% smaller in both 2022 and 2023, the IMF said in the report. The monetary agency cited the downgrading on the cost of living and sluggish investments as the primary reason for downward projection of the economy. The mounting interest rate have sent the consumer prices skyrocketing, causing inflation shock.

UK was downgraded as “consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment," said IMF. 

The overall growth rate of the UK will be “slowest” among all the Group of Seven nations, falling much behind to France as the consumer prices shot to 7.4% in 2022 and is expected to surge to 5.3% in 2023. For other global economies, the inflation is expected to remain below 3%. In the poorer part of the world, IMF warned about a drastic hike in food and fuel prices, that it said may also significantly increase the prospect of social unrests and widespread hunger. 

“Several financial fragility risks remain, raising the prospect of a sharp tightening of global financial conditions as well as capital outflows,” the global monetary agency has warned. Surge in commodity prices and the increase in global interest rates will further reduce fiscal space, it said. The ongoing war continues to elevate the risk of a more permanent fragmentation of the world economy into geopolitical blocks with distinct technology standards, cross-border payment systems, and reserve currencies. 

Image: AP