The entire cessation of Russian gas deliveries to European economies in 2022, according to the International Monetary Fund (IMF), would result in a large rise in global inflation due to rising energy costs.
Food and energy costs, as well as residual supply-demand imbalances, have caused global inflation to be revised up, according to the IMF’s World Economic Outlook, published in July 2022.
This year, it is predicted to increase by 0.9 and 0.8 percentage points, respectively, to reach 6.6% in advanced economies and 9.5% in emerging market and developing nations. the institution of Bretton Woods added.
A disinflationary monetary strategy is anticipated to take hold in 2023, with only a 2.9% increase in world output.
“The risks to the outlook are overwhelmingly tilted to the downside. The war in Ukraine could lead to a sudden stop of European gas imports from Russia; inflation could be harder to bring down than anticipated either if labor markets are tighter than expected or inflation expectations unanchor; tighter global financial conditions could induce debt distress in emerging market and developing economies; renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis might further suppress Chinese growth; and geopolitical fragmentation could impede global trade and cooperation.
“A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 percent and 2.0 percent in 2022 and 2023, respectively, would put growth in the bottom 10 percent of outcomes since 1970,” the IMF said.
It added “With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers. Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them. Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.
“Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary. Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices.
” And as the pandemic continues, vaccination rates must rise to guard against future variants. Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition,” it added.
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