IMF says Ukraine war will severely hit global economy

The IMF (International Monetary Fund) has said that the war in Ukraine will severely set back the global economic recovery with the UK hit harder than most.

The conflict is driving up prices for food and fuel which the international body expects to slow growth globally – having already cut its global forecast and also downgraded its outlook for the UK.

This means the UK will no longer be the fastest growing economy in the G7 group of leading Western nations, and will be the slowest in 2023, it says. The body says that UK growth will slow as price pressures lead households to cut spending, while rising interest rates are expected to "cool investment".

The UK's economy is now predicted to grow by 3.7% this year, down from the previous forecast of 4.7% made in January. However, next year, the UK is expected to have the slowest growth in the G7 and across Europe's main economies, at just 1.2%, a near halving from the 2.3% expected previously.

The 2023 UK figure is the slowest apart from heavily-sanctioned Russia in the wider G20 grouping, which includes nations such as China and India. The IMF works with its 189 member countries to try to stabilise the global economy, including issuing short-term loans and assistance to countries who are struggling.

It said that inflation was now a clear and present danger in many countries and the situation has added to supply strains from the coronavirus pandemic.

IMF director of research Pierre-Olivier Gourinchas wrote in the organisation's 2022 World Economic Outlook; "In the matter of a few weeks, the world has yet again experienced a major, transformative shock. Just as a durable recovery from the pandemic-induced global economic collapse appeared in sight, the war has created the very real prospect that a large part of the recent gains will be erased."

The organisation said it expected global growth of just 3.6% this year, down nearly a percentage point from its forecast before the war. The World Bank also said it was lowering its growth forecast from 4.1% to 3.2%.

The conflict has already devastated the economies of Ukraine and Russia, which the West cut off from key trade and financial networks with sanctions following the invasion. Ukraine is facing a severe contraction of 35% or more this year, while Russia's economy is expected to shrink by 8.5%, the IMF said.

But with Russia a major energy producer and key supplier of staples such as wheat and corn alongside Ukraine, the consequences will ripple far beyond their borders, the IMF warned.