As the war breaks out in Ukraine, its effects on the global economy will soon become more apparent, and the longer it lasts, the worse they will be. A warning was issued over the weekend by the International Monetary Fund, saying the economic consequences of the war are “already very dire” and that continuing it would be “catastrophic”. Inflation is the biggest concern, with oil prices rising to around $120 a barrel within days of the outbreak.
We all need to deal more with severe price pressures for the global economy as it tries to put the effects of the pandemic behind it. Given the volatility in oil due to our external trade balance and domestic price stability, Indian policy makers should remain on special alert. Taking other channels of influence into account as well, it is unclear at this stage whether fiscal shock-absorbers will be used, what war does to central bank monetary policy and other big decisions. The failure by both sides to make progress on the talks has added to the uncertainty that may provide some hope of peace. Even the security corridors for civilian travel have made little progress. The fund does not need to provide much details to justify its concerns.
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