IMF Sees ‘Severe Impact’ on Global Economy From War, Sanctions

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The International Monetary Fund warned Russia's war with Ukraine and the subsequent sanctions imposed upon President Vladimir Putin's country will have a “severe impact” on the global economy.

“While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,” the Washington-based lender said in a statement on Saturday.

Food and energy prices have surged in recent days and supply chains have frayed, adding to the inflationary pressures that policy makers were already struggling to tackle. JPMorgan Chase & Co. economists cut their outlook for global growth this year by about a percentage point, and raised their inflation estimate by a similar amount.

“Price shocks will have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses,” the IMF said. “Should the conflict escalate, the economic damage would be all the more devastating. The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spillovers to other countries.”

The Fund said central banks will need to “carefully monitor the pass-through of rising international prices to domestic inflation, to calibrate appropriate responses.” Governments will need to find ways to support the most vulnerable households and help offset rising living costs.

“This crisis will create complex policy tradeoffs, further complicating the policy landscape as the world economy recovers from the pandemic crisis,” the Fund said.

Ukraine will face “significant recovery and reconstruction costs,” the IMF said, noting that “substantial” economic damage had already been wrought by the war.

The country has sought aid of $1.4 billion and IMF officials will consider the request as early as next week, according to the statement.