Russia’s invasion of Ukraine on Feb. 24 continues to impose a punishing toll. Most importantly, it has created a severe humanitarian crisis. According to the United Nations Refugee Agency, 5.1 million refugees have fled Ukraine since the invasion while an additional 7.1 million have been displaced within the country.
The war is also having a sizable impact on the global economy. In the latest release of its World Economic Outlook, the International Monetary Fund (IMF) severely downgraded its growth forecast for the global economy. The IMF is a Washington, DC-based international organization whose purpose is to promote global trade and stability. The IMF cites the continued fallout from the war in Ukraine as the key factor for this setback.
The IMF notes that “Global economic prospects have worsened significantly” over the past three months, creating a severe setback for the world’s post-pandemic economic recovery. The IMF now expects the global economy to grow by 3.6% in both 2022 and 2023. This is down from their January forecast of 4.6% and 3.8%, respectively.
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The war in Ukraine has invited massive global sanctions against Russia. According to research by Yale University’s School of Management, more than 750 companies have either curtailed their operations in Russia or have completely pulled out since Feb. 24. The war has also destabilized much of Eastern Europe’s supply chains of manufacturing components, finished goods and raw materials, such as metals, crude oil, wheat and corn.
But in today’s global economy, economic chaos in one region of the world can quickly reverberate across the globe. In its latest report, the IMF refers to these global disruptions as “seismic waves” for their destructive, far-reaching impact on economies around the world.
The IMF projects Europe’s economic growth rate to plummet from 5.9% in 2021 to just 1.1% this year. For embattled Ukraine, its economy is expected to actually contract by 35%. By comparison, Russia is expected to see its economy contract by 8.5%. China, the world’s second largest economy behind the US, has a projected growth rate this year of 4.4%, down from 2021’s rate of 8.1%. Here in the US, the Federal Reserve expects America’s economy to grow by 2.8% this year — a 50% decline from 2021. However, many Wall Street economists are already projecting a 2022 growth rate of less than 1%.
America already has a litany of obstacles confronting its economy. Inflation is at a 40-year high, interest rates will soon be going much higher, a record-setting labor shortage and America’s own set of supply chain constraints. That’s a lot of weight to be placed on the shoulders of the US economy. Russia’s invasion of Ukraine has just made that weight a lot heavier.
Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.
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