Inflation Expected To Remain High ‘For Much Longer’
April 19, 2022—War, rising energy costs, and a de-globalizing world are impacting the global economy in large and small ways. The International Monetary Fund is taking note and is adjusting its projection for economic growth to 3.6 percent for 2022 and 2023. That’s down from 6.1 percent growth last year.
Russia’s war on Ukraine and the retaliating sanctions against Russia and Belarus are having the largest impact, according to Pierre-Olivier Courinchas, a lead economist with the IMF. But other factors are weighing down growth prospects too: Inflation, a slowdown in China, and monetary tightening by central banks.
Fragmentation Reversing Gains From Globalization
The IMF is trying to keep the world integrated, Courinchas said. Deglobalization is the largest risk, not only for the global economy but also the U.S. dollar. In a multipolar world, it is “not just the dominance of the dollar,” he said today during the IMF press conference to announce the adjustments.
In his written explanation, Courinchas warned of long-term risks associated with reversal of globalization.
“The war also increases 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. Such a tectonic shift would cause long-run efficiency losses, increase volatility and represent a major challenge to the rules-based framework that has governed international and economic relations for the last 75 years,” Courinchas wrote.
Inflation To Remain High
For advanced economies in Europe and the United States, supply shortages and rising prices are likely to remain persistent problems.
“Inflation has become a clear and present danger for many countries,” Courinchas wrote on the IMF blog, noting it has reached its highest level in more than 40 years. “We now project inflation will remain elevated for much longer.”
In poor and emerging economies, rising food and fuel prices pose a significant risk of social unrest. (We’ve already since outbreaks of unrest in some countries, like Peru.)
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