IMF sees war in Ukraine cutting world growth and favoring Brazil

The war in Ukraine, amplified by the economic sanctions applied to Russia by the United States and allies in NATO (North Atlantic Treaty Organization), led the IMF (International Monetary Fund) to promote a heavy cut in its projections for the growth of the world economy. in 2022 and beyond. In the most recent report “World Economic Outlook”, the quarterly publication released this Tuesday (19), the IMF projects global economic expansion of 3.6%, a decrease of 0.8 percentage point in relation to the January forecast of growth of 4.4% for the economies as a whole.

In the framework outlined by the IMF to support the new projections, two factors combine. The first is the rise in international prices of energy and food commodities. This rise in prices negatively impacts demand and economic activity in importing countries.

The other factor is the logistics problems, originating from the breakdowns caused by the pandemic, which lead to a lack of supplies in the production chains, contracting the supply of manufactured goods, which is enhanced by the Chinese policy of zero covid-19, which makes it more frequent and strict adoption of lockdowns.

Both contribute both to slowing growth in economies around the world and to intensifying inflationary pressures in most countries.

These same elements would have an effect in opposite directions in the Brazilian economy. The rise in commodities would have, in the IMF’s assessment, positive net effects on economic activity, and, at the same time, will increase current inflationary pressures.

In the new IMF projections, the Brazilian economy will grow 0.8% in 2022, well above the 0.3% growth projection released in January, but almost half of what was forecast in the October 2021 report. modest expansion, below that forecast for the rest of the world and even for Latin America.

The acceleration of the expected pace of growth would be insufficient, for example, to absorb an encouraging volume of idle labor and fill idle production capacity. The slight higher growth would be accompanied by a rise in inflation, which would reach 8.2% in 2022, above the 7.5% still expected by Brazilian analysts, while unemployment would resist in the range of 13% of the workforce. .

Brazil occupies a prominent position at the top of the list of the largest exporters of food commodities (and also of oil and metals), and, in this direction, has benefited from the rise in prices. Brazilian agribusiness sales abroad, in March, for example, were record – up 30% compared to March 2021.

On the other side of the coin of high commodity prices are inflationary pressures, derived directly from international increases in grain and oil prices, but also from internal causes, such as Petrobras’ pricing policy, linked to external prices and the dollar. . In addition, the lack of stock policies and food market regulation and the disarticulation of the support structure for family farming also have a negative impact on inflation rates. Estimates that the Central Bank will raise the nominal interest rate above 13% in 2022 – keeping it at around 7% in real terms – contribute to limiting the positive effect of the rise in commodities.

The IMF cut its 2022 growth forecasts for most countries from its January forecasts. For the United States, the Fund’s economists cut their estimate of economic growth by 0.3 percentage point to 3.7%. In the case of China, the cut was 0.4 point, which brought the expectation of expansion of activity to 4.4.

The biggest negative impact, understandably, was with Russia. In the IMF’s view, the Russian economy is expected to plunge 8.5% this year, squeezing inflation above 20% this year and still falling another 2.3% in 2023.

Few countries, other than Brazil, had improved projections in the April report compared to January’s figures. This was the case with the IMF forecasts for Latin America and the Caribbean, which are now for regional average growth of 2.5% in 2022, 0.1 point higher than forecast in January. Countries in poor Sub-Saharan Africa would also grow 0.1 point above the previously estimated, with an increase of 3.8% this year.

Not coincidentally, and showing the weight lent to the issue of oil and gas supply, the highest growth in 2002 forecast for a country by the IMF, compared to forecasts at the beginning of the year, would be achieved by Saudi Arabia. In IMF projections, the Saudi economy, one of the largest producers and exporters of oil, will grow 7.6% in 2022, 2.8 points above the estimate in January.

About Abhishek Pratap

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