According to the latest KPMG Global Economic Outlook, the on-going geopolitical crisis in Ukraine is set to lower global growth prospects and increase inflationary pressures across the world
This report, published bi-annually, provides economic forecasts and analysis from the global organization’s team of economists in territories and regions throughout the world. The latest edition which covered H1’2022, warns progress on global issues including public health and climate change has slowed as political and business leaders grapple with the broad implications of the war in Ukraine.
Although both Russia and Ukraine may represent a relatively small part of the world economy, however, both countries account for a large share of global energy exports, as well as exports of a range of metals, food staples and agricultural inputs. To give a staggering picture, Russia and Ukraine both account for almost a third of global wheat exports.
The global economy has just slowly emerged from the COVID-19 recession with higher public debt and as central banks raise interest rates, the servicing cost of sovereign debt also increases, making it particularly challenging for emerging countries whose debt is denominated in an appreciating US dollar. With policymakers and many businesses still reeling from the consequences of the pandemic, they are less ready to counter another significant economic shock.
ASEAN growth outlook
Inflation is picking up across the ASEAN region in part driven by the easing of Monetary Policy during the pandemic. But unlike other parts of the world, momentum in prices is still relatively low – consumer price inflation in Indonesia, Malaysia, Thailand and Vietnam is currently sitting between 2% and 3%. Fiscal supports through the pandemic were generally smaller, resulting in a slower recovery in domestic demand and more muted local inflationary pressures. However, Singapore – where government support has been more significant – is an exception, with inflation currently at a high of 4%, not seen since 2013.
The recent rises in food and fuel prices will impact the region. A significant portion of wheat imports (to Indonesia and Philippines in particular) are sourced from Russia and Ukraine. Additionally, agriculture in the region is also heavily reliant on Russia and Belarus for potassic fertiliser. The adverse impacts of higher fuel prices are, however, partially offset in commodity-producing economies such as Indonesia and Malaysia through higher government revenues.
The Russian-Ukrainian conflict is also set to disrupt manufacturing supply chains, as a result of shortages in key inputs such as neon and semi-finished iron and steel, which are essential for the production of chips (neon) and cars, machinery and electronics (steel).
In some countries, such as Indonesia and Singapore, attention has started to shift towards fiscal consolidation with the announcement of tax increases as initial signs of economic recovery emerge. This will slow growth momentum going through H2 2022 and 2023, as will the exhausting of the easy wins from re-opening, which will take the pace of growth in many countries back towards long-run trend rates.
