Crude oil prices fell yesterday as the International Monetary Fund warned that high inflation and the Russian-Ukraine war could send the global economy to the brink of a recession.
In an update to its World Economic Outlook, the IMF also slashed global GDP growth forecasts for this year, to 3.2 per cent, as GDP already contracted in Q2. The new estimate is down from its forecast of 3.6 per cent made in April.
At 1:36 p.m. ET, WTI was trading at $95.73, down $0.97 (-1.00 per cent) on the day. Brent crude slipped to $104.80, down $0.31 (-0.29 per cent) on the day, with a wide gap between the two benchmarks.
The IMF’s view of 2023 on the back of tighter monetary policy was also downgraded to 2.9 per cent—down from its estimate of 3.6 per cent made in April.
“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” the IMF Chief Economist Pierre-Olivier Gourinchas said at a Tuesday news conference, according to Reuters.
The IMF cautioned that its forecasts were ‘extraordinarily uncertain’ with even more downside risks possible courtesy of higher energy and food prices as a result of the war in Ukraine—a recipe that could worsen inflation and trigger even more monetary policy tightening.
In a worsecase yet ‘plausible’ scenario, Russia could halt gas flows to Europe completely by year end, along with another 30 per cent drop in Russian oil exports, slowing GDP growth even further to 2.6 per cent this year and 2 per cent next year.
For 2022 inflation in advanced economies, the IMF sees it reaching 6.6 per cent—up from 5.7 per cent that it predicted in its April forecast.