The International Monetary Fund on Tuesday downgraded its forecasts for global economic growth in 2022 and 2023, saying the economic impact of geopolitical events in Russia and Ukraine is spreading.

The Washington-based agency now projects global GDP growth of 3.6 percent this year and 2023. Those figures were down 0.8 and 0.2 percentage points, respectively, from forecasts released in January.

“The global economic outlook has suffered a severe setback, mainly due to the conflict between Russia and Ukraine,” Pierre-Olivier Gourinchas, economic adviser to the International Monetary Fund, said in a blog post on Tuesday. Say.

“The impact of geo-events will be widespread, increasing price pressures and exacerbating significant policy challenges,” Gourinchas said.

Earlier this week, the World Bank also downgraded its global growth forecast, cutting growth to 3.2% in 2022 from 4.1%.

Some follow-on events will also have an impact on the Russian economy, which is expected to drop by 8.5% this year and 2.3% in 2023, the IMF said. However, the IMF’s forecast for Ukraine’s economy is more pessimistic.

“In 2022, the Ukrainian economy is expected to contract by 35%,” the International Monetary Fund said in its latest economic assessment. “Even if some geopolitical events are coming to an end, factors such as physical capital will seriously hinder economic activity for many years to come,” the agency said.

Inflation is dangerous

More broadly, the conflict in Russia and Ukraine has exacerbated the supply shock to the global economy, while also creating new challenges. “Russia is a major supplier of oil, gas and metals, and Ukraine is also one of the major producers of wheat and corn. Reduced supplies of these commodities have driven their prices sharply higher,” the IMF said on Tuesday, Gourinchas said.

The IMF expects this to hurt low-income households around the world and cause inflation to rise for longer than previously thought. The International Monetary Fund estimates inflation will hit 7.7% this year in the U.S. and 5.3% in the euro zone.

“The risk of inflation expectations deviating from central bank inflation targets is rising, prompting policymakers to adopt more aggressive tightening measures,” the IMF said.

Bullard, one of the earliest advocates of a big rate hike at the Fed, doesn’t rule out a real big rate hike, though he doesn’t think it needs to be.

Turning to the magnitude of rate hikes, St. Louis Fed President James Bullard said on Monday that a rate hike of more than 50 basis points was “not my base case”. But he pointed out that the Fed is raising rates even more, and when it comes to potentially raising rates by 75 basis points, I wouldn’t rule that out. “

Bullard said the Fed is moving ahead with a tightening program, hoping to raise the federal funds target rate to around 3.5% by the end of the year, helping to rein in inflation, which is currently at a 40-year high.

The Federal Reserve is expected to raise interest rates six times in 2022, and the European Central Bank confirmed last week that it will end its asset purchase program in the third quarter. However, this monetary tightening could accelerate if inflation remains high.

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