IMF’s Georgieva says Ukraine conflict hits progress, threatens to fragment world financial system

The conflict in Ukraine is prompting the International Monetary Fund to chop world progress estimates for each 2022 and 2023 as increased meals and vitality costs strain fragile economies, the IMF’s managing director, Kristalina Georgieva, mentioned on Thursday.

Georgieva mentioned in a “curtain raiser” speech for subsequent week’s IMF and World Bank spring conferences that the fund would downgrade its progress outlooks for 143 economies representing 86% of worldwide financial output, however mentioned most international locations will preserve constructive progress.

Georgieva, who beforehand warned that the conflict would drag on progress this 12 months, mentioned Russia’s invasion of Ukraine was “sending shockwaves throughout the globe” and dealing an enormous setback to international locations struggling to recuperate from the still-raging COVID-19 pandemic.

“To put it simply, we are facing a crisis on top of a crisis,” Georgieva mentioned in remarks to the Carnegie Endowment for International Peace in Washington. “In economic terms, growth is down and inflation is up. In human terms, people’s income are down and hardship is up.”

The IMF, which is about to launch new financial forecasts on Tuesday, anticipates that inflation, now a “clear and present danger” for a lot of economies, will stay elevated for longer than beforehand anticipated.

Georgieva didn’t present a selected goal for world progress, however has mentioned beforehand it will be decrease than the 4.4% the IMF forecast in January, a determine already diminished by half a proportion level because of lingering provide chain disruptions attributable to the pandemic.

“Since then, the outlook has deteriorated substantially, largely because of the war and its repercussions,” she mentioned. “Inflation, financial tightening and frequent, wide-ranging lockdowns in China — causing new bottlenecks in global supply chains — are also weighing on activity.”

THE THREAT OF FRAGMENTATION

Georgieva additionally warned of a serious new complication, the fragmentation of the worldwide financial system into geopolitical blocs, with differing commerce and expertise requirements, cost methods and reserve currencies.

Similarly, U.S. Treasury Secretary Janet Yellen raised issues on Wednesday a few “bipolar” world financial system with the United States and democratic allies on one aspect, and China and different state-led economies on the opposite. Georgieva mentioned such a fragmentation was the largest risk to the post-World War Two, U.S.-led financial order ruled by the IMF, the World Bank, and different establishments created on the finish of that battle.

“Such a tectonic shift would incur painful adjustment costs. Supply chains, R&D, and production networks would be broken and need to be rebuilt,” she mentioned.

“Poor countries and poor people will bear the brunt of these dislocations.” The shift is already impairing the world’s capacity to work collectively to resolve the Ukraine conflict and COVID-19 crises and threatens to derail cooperation on local weather change and different challenges, she mentioned.

Georgieva mentioned meals insecurity is a “grave concern” due to disruption to grain and fertilizer provides from Ukraine, Russia and Belarus, pressuring the weakest international locations. Without motion on a multilateral plan to bolster meals provides, many international locations face extra starvation, poverty and social unrest.