Moody’s slashes 2022-2023 global growth forecasts on Russia-Ukraine turmoil

LONDON (ICIS)–Moody’s  has cut its growth estimate for G20 countries from 4.3% to 3.6% for 2022 in the wake of Russia’s invasion of Ukraine, with the global economy expected to slow further next year.

The invasion of Ukraine and subsequent moves by western powers to sanction Russian businesses, exports and financial transactions has resulted in spiking commodity prices that could result in high input costs and consumer inflation, as well as disruption to integrated global economic systems, Moody’s said.

“Heightened security and geopolitical risks will exert economic costs and weigh on the economy by denting sentiment,” the agency said in its latest macroeconomic outlook.

Moody’s also expects G20 growth to slow further net year, to around 3%, Moody’s added. With restrictions to exports, US dollar and euro-denominated financial transactions and sanctions against its central bank, Russia’s economy is likely to suffer substantial damage from the conflict.

The ratings agency projected that Russia’s economy will suffer dramatic downswings as a result of the sanctions, with GDP expected to contract 7% this year and 3% in 2023. Moody’s had previously forecast that Russian GDP would grow 2% in 2022 and 1.5% next year.

Downside risks that could shift G20 GDP into recession include surging oil prices and a widening of the conflict to encompass other countries, the agency added.

The current crisis also signals further pressure on central banks to tighten monetary policy as inflation continues to ratchet up, pointing to scope for interest rate hikes to be introduced earlier than expected.

“The situation is fluid and unpredictable with risks heavily skewed to the downside. Thus, far worse outcomes than our baseline projections have become more likely, depending on how the Russia-Ukraine conflict evolves,” Moody’s analysts said in an investor note.

“As of now, the risk of a worsening conflict appears far higher than does a thaw. Economic impact will build the longer the conflict drags on, and especially if it expands beyond Ukraine,” the agency added.

Thumbnail picture: The Odessa National Academic Theatre of Opera and Ballet in Ukraine on 18 March 2022. Source: Stepan Franko/EPA-EFE/Shutterstock