By Geoffrey Smith
Investing.com -- The International Monetary Fund joined its sister institution the World Bank in slashing its growth forecast for 2022, in response to the global surge in inflation, complicated further by Russia's invasion of Ukraine.
Global gross domestic product will expand only 3.6% both this year and next, the Fund said as it published its new World Economic Outlook on Tuesday. That represents a cut of 0.8 percentage point and 0.2 percentage point from its previous estimates in December.
"The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution." the IMF said. "At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest."
World GDP had rebounded by around 6.1% in 2021 after a severe hit in 2020, the first year of the pandemic.
The Fund also warned that inflation is set to hit an average of 5.7% this year across advanced economies, with emerging economies suffering an average inflation rate of 8.7%. That's an upward revision of 1.8 points and 2.8 points, respectively.
The Fund's warnings come on a day when U.S. bond yields hit their highest in over three years as St. Louis Federal Reserve President James Bullard suggested that the Fed may raise its key rate by as much as 75 basis points at its meeting next month, in what has become an increasingly desperate campaign by the central bank to get inflation under control. The U.S. consumer price index rose by 8.5% in the year through March, its fastest increase in 40 years.
One of the prime sources of that inflation has been commodity markets. Crude oil prices shot above $100 a barrel in the wake of Russia's invasion and have largely stayed there since. Prices for cereals, the world's most important food crops, have also surged as exports from Russia and Ukraine - two of the world's biggest suppliers - have been disrupted. U.S. corn futures topped $8 a bushel for the first time in over a decade Tuesday and are now only 3% below their all-time high.
The sharp worldwide increases for essentials such as food and energy are already sending shockwaves around the world, having caused riots from Peru to Sri Lanka in recent weeks. In advanced economies, the galloping cost-of-living crisis has led to a collapse in support for ruling parties in the U.S. and U.K. It's also eaten badly into support for French President Emmanuel Macron, who faces a run-off against the populist right-wing candidate Marine Le Pen on Sunday.