Gas disruption due to Ukraine war could trigger Europe recession, IMF warns

Head of IMF urges wealthier countries to provide support to poorer nations as millions at risk of hunger

Destroyed vehicles are seen in Vinnytsia (via REUTERS)

Disruptions to natural gas supplies worsened by Russia’s invasion of Ukraine could trigger recessions across Europe, the International Monetary Fund has warned.

Head of the IMF Kristalina Georgieva said that the ongoing war had significantly worsened the economic outlook and that growth could reduce.

Ms Georgieva warned that slowing growth and rising prices could exacerbate the cost of living crisis and plunge an additional 71 million people into extreme poverty.

Last week, she said the fund would scale back forecasts for 3.6 per cent growth in 2022 for the third time this year and cautioned a recession could not be ruled out next year.

“Countries must do everything in their power to bring down high inflation,” Ms Georgieva said ahead of this week’s meeting of finance officials from major economies.

“Persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable.”

She added that concerns over food and energy supplies also heightened the risks of social instability and wealthier countries should provide support, funding and reduce exportation restrictions on poorer nations to reduce risk of hunger.

Regarding banks, Ms Georgieva said that they would need to continue to tighten monetary policy, particularly in countries where inflation expectations were beginning to de-anchor.

Kristalina Georgieva (AP)

Without action, she warned that those countries could face a “destructive wage-price spiral” that could result in more monetary tightening and further harm to employment and growth.

She added that policymakers should prepare to use foreign exchange interventions or capital flow management measures for disruptive external shocks so disruptive that could not be absorbed by flexible foreign exchange rates alone.

For countries with high levels of debt, Ms Georgieva said they should reduce reliance on foreign currency borrowing and scale back fiscal spending to lighten the burden of borrowing.

She added that urgent efforts would be needed to reduce debt, particularly for emerging and developing economies with high foreign exchange liabilities.

Around 30 per cent of emerging market countries and 60 per cent of low-income nations were now in or near debt distress, further adding to economic and subsequent social crisis.