Russia’s war in Ukraine is proving to be “one of the biggest threats” to the world economy at the moment, according to Deputy Prime Minister Chrystia Freeland.
Freeland, who also serves as Canada’s finance minister, made the comments to reporters in Washington, D.C., on Friday following the annual meetings of the World Bank Group and International Monetary Fund (IMF), which put out a stark world economic outlook earlier this week.
“One of the biggest threats, not only to the lives of Ukrainians right now, not only to the sanctity of the international rules-based order, but also to the world economy today is Russia’s invasion of Ukraine,” Freeland said.
“There’s one simple thing that could happen that would make the global economy much more secure, and that is for Russia to get out of Ukraine.”
The IMF cited the war in Ukraine on Tuesday as one of the drivers for cutting its global growth forecast for 2023. High energy and food prices, inflation and sharply higher interest rates, also factored in to the IMF’s report, which indicated a third of the world economy will likely contract by next year.
Russia’s war in Ukraine has been raging for close to eight months since the wide-scale invasion began on Feb. 24. In response, western nations rallied around Ukraine to support it with military and financial aid, while moving to punish Russia financially – a decision that has had ripple effects in the West.
A push to drop Russian oil has led to many European nations rationing current supplies for winter; as a result of the war, oil prices soared, driving inflation sky-high in many nations including Canada. While oil prices have dropped, they still remain at an elevated level compared to previous years and inflation has persisted, leading to projections of an economic slowdown next year.
The IMF said global GDP growth next year will slow to 2.7 per cent, compared to a 2.9 per cent forecast in July, as higher interest rates slow the U.S. economy, Europe struggles with spiking gas prices and China contends with continued COVID-19 lockdowns and a weakening property sector.
The IMF, though, is keeping its 2022 growth forecast at 3.2 per cent, reflecting stronger-than-expected output in Europe but a weaker performance in the United States, after torrid 6.0 per cent global growth in 2021. Canada’s GDP growth will slow to 1.5 per cent next year, down 0.3 percentage points from the summer’s forecasts, the IMF forecasts.
U.S. growth this year will be a meager 1.6 per cent – a 0.7 percentage point downgrade from July, reflecting an unexpected second-quarter GDP contraction. The IMF kept its 2023 U.S. growth forecast unchanged at 1.0 per cent.
The IMF put a 25 per cent probability of global growth falling below 2.0 per cent next year – a phenomenon that has occurred only five times since 1970 – and said there was a more than 10 per cent chance of a global GDP contraction.
“In short, the worst is yet to come, and for many people, 2023 will feel like a recession,” said IMF Chief Economist Pierre-Olivier Gourinchas in a statement Tuesday.
Outside of the IMF, the Royal Bank of Canada, which was an early predictor of a recession in 2023, said this week it now expects the country’s economic downturn will hit sooner and with more job losses than first expected.
For Freeland, if Russia’s war were to end in Ukraine soon, the impacts could be felt almost immediately.
“That would have an impact on food security,” she said. “It would have an impact on energy prices; it would take a lot of the turbulence out of the global economy.”
— with files from Global News’ Craig Lord
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