The war in Ukraine is the “single most important negative factor” for the world economy this year — and most likely for 2023 as well, IMF chief Kristalina Georgieva told CNBC Wednesday.
“We judge the war in Ukraine to be the single most important negative factor for the world economy this year, most likely also next year,” she told CNBC’s Martin Soong on the sidelines of the Group of 20 meeting in Bali, Indonesia.
“Anything that creates more anxiety is, of course, damaging for the prospects for growth and for meeting the needs and aspirations of people everywhere,” said the managing director of the International Monetary Fund.
Her comments were in response to a missile that struck Polish territory late Tuesday, which killed two civilians.
Preliminary assessments suggest the Russian-made missile may have been fired by Ukrainian forces at an incoming Russian missile.
NATO’s secretary-general said “there was no indication this was the result of a deliberate attack,” even as investigations are ongoing.
“But let me be clear, this is not Ukraine’s fault. Russia bears ultimate responsibility as it continues its illegal war against Ukraine,” Jens Stoltenberg said.
Most G-20 members condemned Russia’s aggression against Ukraine in a draft declaration on Tuesday.
“I want to congratulate Indonesia for chairing so well, in this very difficult moment,” she said.
However, she stressed that the G-20 summit is not about the fact that there’s a joint declaration, but the focus has been “very pressing problems” — such as global inflation, rising costs of living, food and energy security.
“I was listening very carefully to all the statements and it’s encouraging that these are the issues we are focusing on — as we must.”
‘High price to pay’ for fragmentation
The IMF previously issued warnings on the fragmentation of the global economy as a result of the Russia-Ukraine war, and cut 2023 growth forecasts to 2.7% — predicting a slowdown from an expected 3.2% in 2022.
“This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic,” the international body in its October report.
“We are seeing some signs of fragmentation already and they come from a legitimate concern … the security of supplies,” Georgieva told CNBC.
“We have seen [this] because of Covid and because of the war in Ukraine, that supply chains get interrupted, and that damages growth domestically and internationally.”
She added that if the world chooses to go into “separate blocs,” there will be a high price to pay.
“And this price would be particularly high for open economies, and more broadly for the developing world,” warned Georgieva.
Asia and the Pacific, for example, could lose over 3% in gross domestic product if trade is cut off in sectors hit by U.S. chip sanctions on China and if non-tariff barriers in other areas are raised to “Cold War-era levels,” said the IMF in a report last month.
“If we want not to lose somewhere between $1.4 [trillion] to maybe $3.4 trillion a year — just imagine what we can do with this money — then we should very carefully project the consequences of actions and be wise to prevent sleepwalking into a world that is poorer and less secure,” Georgieva said.