The Ukraine war and the economic consequences will dominate the meeting. The threatened “loss of prosperity is a direct result of the Russian war of aggression,” says a German government official. That will also be Lindner’s message in Washington.
On Tuesday, the IMF presented its new forecast for the development of the global economy, and it turned out fatal. In almost all major countries, the Monetary Fund has had to correct its previous expectations significantly downwards. In January, the IMF was still assuming that the global economy would grow by 4.4 percent in 2022. Now he only expects an increase of 3.6 percent.
“The economic effects of war spread widely, like seismic waves emanating from the epicenter of an earthquake,” the IMF officials write in the forecast. For 2023, they are also lowering the growth prospects to 3.6 percent.
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Aside from the immediate humanitarian impact, the war in Ukraine will severely slow down global recovery, slowing growth and further increasing inflation.
The economy is collapsing the most because of the sanctions in Russia itself. Instead of growth, the IMF expects gross domestic product (GDP) there to fall by 8.5 percent in the current year. But there are also clear effects in other countries. In Europe, China, India, the USA – the IMF is correcting its expectations downwards everywhere.
From Wednesday he will take part in the spring conference of the International Monetary Fund (IMF) for the first time.
(Photo: dpa)
Europe is particularly affected. In the euro zone, growth in the current year will only amount to 2.8 percent. The minus in Germany is even clearer: the IMF has revised its estimate for German GDP downwards by 1.7 percentage points to 2.1 percent.
Tough message from finance ministers to Moscow
In Washington, Lindner and his fellow Western finance ministers want to send a tough message to Russia. “Russia bears full responsibility for the impact of the war on the world economy,” government sources said. This will “endanger” the economic recovery after the corona pandemic.
It is expected that Russian government representatives will also take part in the annual leadership conference and the parallel meetings of the most important industrialized and emerging countries (G20).
In the run-up, it was considered whether Western governments would boycott the meetings for this reason. But a decision was made against it. “We don’t want to let Russia sabotage international cooperation,” says the Federal Ministry of Finance.
However, there will be no joint final declaration by the G20 finance ministers. An agreement with Russia is not possible. Whether the IMF will publish a communiqué after the meeting is still open. In any case, the finance ministers of the western states want to sharply criticize Moscow in Washington and point out the global consequences of the war.
>>> Read here: Are we approaching a decade of stagflation? Four reasons that speak for it
Lindner will do the same, Germany is chairing the group of large industrialized countries (G7) this year. A meeting of G7 finance ministers is also planned.
However, what is still likely to be discussed among Western government representatives is the question of an oil and gas embargo against Russia. The United States has already imposed a freeze on oil supplies. The EU is also working on this, but has not yet convinced all member states.
A gas embargo, on the other hand, fails primarily because of resistance from Germany, which is heavily dependent on Russian supplies.
According to the IMF, embargo damage mainly in Europe
“The world economy could be put under much more pressure than the IMF is forecasting,” says trade economist Vincent Stamer from the Kiel Institute for the World Economy (IfW) with a view to a possible supply stop for Russian energy.
If the announced oil embargo comes and Russia doesn’t get rid of all its oil elsewhere, it will hit the economy hard. “If resources remain unused, this depresses consumption and further drives inflation,” explains Stamer.
This is also shown by the calculations of the IMF. A complete embargo on Russian oil and gas would therefore reduce global economic output by around two percent in the current year – roughly a trillion dollars in added value would be lost. By 2027, the minus would still be around one percent.
For a scenario without embargoes, the IMF has already increased its inflation forecast.
(Photo: imago images/photothek)
However, more than half of the damage can be traced back to Russia itself. In addition to the already severe recession, GDP there would be another 15 percent lower by 2027. For the EU, the minus this year would be minus three percent compared to the scenario without an embargo.
In addition to production losses due to a lack of oil and gas, the damage would result from higher prices. According to the IMF, the worldwide inflation rate would be one percentage point higher in the next two years if there were an embargo. Due to the economic damage, however, inflation would already be below the forecast rate by 2024 without a delivery stop.
The IMF has already increased its inflation forecast for the scenario without embargoes. For the industrialized countries, the IMF predicts inflation of 5.7 percent in the current year, which is 1.8 percent more than expected in January.
China’s Covid policy causes port activity to plummet
The economic effects of the war are only beginning to be foreseen when the next danger is already building up. China’s zero-tolerance policy in the corona pandemic is once again threatening the global economy.
The Asian country is currently struggling with a wave of infections that it has never seen before. The state leadership relies on sealing off entire districts in the event of individual corona cases. In the past, this had already caused numerous global supply chains to collapse because raw materials and preliminary products from China were not produced and could not be delivered. Shanghai is particularly affected at the moment. The metropolis has been sealed off since the end of March. About 25 million people have been ordered to stay at home.
>>> Read here: China’s corona policy may become the greatest risk to the global economy
Evaluations by the IfW of ship movements at Chinese ports show that this is likely to have a significant impact on the supply chains again. Exports from the port of Shanghai have slumped in recent days and are about 30 percent below the development of other ports in China. “Should various supply chains collapse again due to China’s Covid policy, the damage to the global economy would be considerable,” says economist Stamer.
In 2021, shipping traffic was significantly impacted by the pandemic, especially due to behavior in China. Many ships could not land at their destinations because deliveries were backed up at the ports. Closed ports in China caused bottlenecks and congestion elsewhere.
According to the IfW data available to the Handelsblatt, there is now every reason to worry. At almost twelve percent, the proportion of goods that are on stationary ships outside of ports is already almost as high as at peak times in 2021.
The IMF therefore also warns: “Due to tightly networked global supply chains, production interruptions in one country can very quickly have a cascading effect on the whole world.”
More: Are we approaching a decade of stagflation? Four reasons that speak for it