Global uncertainty is heightened by the war between Russia and Ukraine, which may slow economic growth this year, the International Monetary Fund (IMF) noted in its blog post, citing the latest reading of an index.
“As the war in Ukraine unfolds, global uncertainty has increased, according to the latest reading of the World Uncertainty Index – a quarterly measure in 143 countries. This increase is a bad sign for growth,” the IMF wrote.
“Our research shows that such increases foreshadow significant production declines. Based on our estimates, the increase in uncertainty in the first quarter could be enough to reduce global growth for the full year by up to 0.35 percentage points.” , the blog post added.
Already disrupted global supply chains led by the pandemic have been further disrupted by the ongoing conflict between Russia and Ukraine, which has seen prices of energy and raw materials soar.
Commodity prices have indeed skyrocketed since Russia invaded Ukraine in late February, the most significant attack on a European state since World War II. Moscow calls it “a special operation in Ukraine.”
At one point, benchmark prices for Brent oil soared to multi-decade highs of nearly $140 a barrel. Although the price of crude has fallen in recent weeks, it is still above $100 a barrel.
The rise in crude prices and the spike in the cost of commodities has further exacerbated the already high inflation. And the surge in inflation has put major central banks on a tighter monetary policy path, even as global economies are in various stages of recovery from the pandemic.
Despite the uneven recovery, major central banks are now poised to tighten policy aggressively to contain the rapidly rising inflation, which is expected to hurt economic growth and activity.
“While global uncertainty reached unprecedented levels with the initial coronavirus outbreak, it subsequently declined sharply. However, the World Uncertainty Index recovered in the first quarter, reaching levels close to what was seen around the September 11, 2001 attacks in the United States. States and the United Kingdom’s vote in 2016 to leave the European Union,” the IMF noted.
The blog post referring to the Uncertainty Index states that despite the recent jump, the current value is still half the level at the start of the pandemic.
There could be three reasons: COVID-19 was a global event that affected almost every economy and health system. The outbreak came amid already significant uncertainty from Brexit and trade tensions between the US and China. The index may still rise to a new peak in uncertainty related to the war in Ukraine, the IMF added.