IMF, World Bank to revise global growth forecasts downward
What's the story
Top finance officials from around the world are set to meet in Washington this week amid the ongoing war in the Middle East. The conflict is being seen as a major blow to the global economy, following the COVID-19 pandemic and Russia's invasion of Ukraine in 2022. International Monetary Fund (IMF) and World Bank officials have said they will revise their global growth forecasts downward and increase inflation predictions due to this war.
Economic impact
Emerging markets and developing countries to be hit hardest
The ongoing conflict is expected to hit emerging markets and developing countries the hardest, owing to rising energy prices and supply disruptions. The World Bank's baseline estimate now predicts growth in these economies will be 3.65% by 2026, down from an earlier prediction of 4%. However, if the war continues for a longer period, this number could drop as low as 2.6%.
Crisis escalation
Inflation and food insecurity on the rise
The World Bank has also revised its inflation forecast for these countries, now expecting it to hit 4.9% by 2026, up from an earlier estimate of 3%. In a worst-case scenario, inflation could spike as high as 6.7%. The ongoing war could also push an additional 45 million people into acute food insecurity due to disruption in fertilizer shipments needed for agriculture.
Emergency support
Emergency support needed for low-income countries
The IMF has projected a demand for $20 billion to $50 billion in near-term emergency support for low-income and energy-importing countries. Meanwhile, the World Bank has said it could mobilize some $25 billion through crisis response instruments in the near-term, and up to $70 billion within six months, as needed. However, economists are advising governments to implement targeted and temporary measures to alleviate the burden of rising prices on their citizens without triggering broader inflation.
Economic juggling
Long-term job creation challenge looms large
Countries are now faced with the difficult task of managing inflation while keeping an eye on growth and the long-term challenge of creating enough jobs for the 1.2 billion people who will come of working age in developing countries by 2035. The IMF and World Bank also face a far different global landscape with tensions running high between the US and China, the world's largest economies.
Group dynamics
US G20 presidency hampered by Russia's exclusion
The US currently holds the rotating presidency of the G20, which also includes Russia and China, but has excluded South Africa from participation. This exclusion has complicated the group's ability to coordinate on this crisis. Josh Lipsky, chair of international economics at the Atlantic Council, said "You're trying to operate on consensus when there's no consensus in the world right now on anything."