What would be the impact of a Russian default? According to Gita Gopinath, number 2 of the International Monetary Fund (IMF), the direct effect on the rest of the planet would be rather limited”, insofar as the amounts of the payment deadlines that Moscow must honor “are relatively low at the moment. ‘global scale’.
“This does not represent a systemic risk for the global economy,” she said, while stressing that some banks with greater exposure could, however, be hit harder.
So far, despite heavy sanctions against Moscow since the invasion of Ukraine, Russia has paid off its debts. JPMorgan thus received a payment of 66 million dollars from the Russian central bank intended to pay a tranche of interest linked to bonds.
Important consequences of the war
However, the managing director of the IMF, Kristalina Georgieva expects significant consequences of the war in Ukraine on the world economy. On March 5, the institution had indicated that oBesides the conflict itself, Western sanctions imposed on Russia “will also have a substantial impact on the world economy and financial markets, with collateral effects for other countries”, warned the IMF, even adding that they could be “devastating” should the conflict escalate.
Besides the IMF, other major international economic organizations such as the EBRD and the World Bank have recently warned of the “widespread” consequences of the Russian invasion of Ukraine for the global economy. In a joint statement issued last Friday, they say they are “horrified and deeply concerned”, and indicate that they met on Thursday to discuss its impact and the collective response to the conflict.
The signatory organisations, which also include the European Investment Bank (EIB), point out that in addition to “the devastating humanitarian disaster in Ukraine, the war is disrupting livelihoods in the region and beyond”.
It reduces the supply of energy, food, increases prices, “will harm post-pandemic planetary recovery”. Financial markets too will be hit with uncertainty that will ripple through asset prices, tighten financial conditions, and could even “spur capital flows out of emerging markets.”
The war will lead the IMF to revise its forecasts downwards, more than it did in January (-0.5 points to 4.4%). The world economy should remain “in positive territory” but a certain number of countries, starting with Russia and Ukraine as well as neighboring countries directly affected by the conflict, will be in recession, indicated Kristalina Georgieva.
The Great Threat of Inflation
More generally, “the very worrying impact is inflation,” she continued. The IMF expected price pressure to ease over the year. However, it is increasing.
The conflict in Ukraine is also changing international trade, observed Gita Gopinath.
“The energy trade will never be the same after the war in Ukraine,” she said as countries strive to cut their dependence on Russia for the benefit of the United States in particular.