An uneasy sense of deja vu is gripping the ASEAN economy.
Just as economies in the region seemed on track for recovery at the end of 2021, the Omicron variant and Russia-Ukraine war broke out — sending another wave of tremors through the global economy.
In Asia, trade is experiencing a one-two punch. First, from the uncertainty of shipping caused by COVID-19 and from current supply chain disruptions triggered by the Russia-Ukraine conflict.
Key shortages in neon and steel — essential in the production of semiconductor chips and cars — have placed Asia’s manufacturing giants under pressure. Meanwhile, countries like Indonesia and the Philippines which rely on wheat imports from Russia and Ukraine are expected to see a surge in food prices.
Asia is not alone.
The war has significantly dampened global growth prospects as inflationary pressures intensify, triggered by supply chain disruptions and rising commodity prices. Geopolitical uncertainty will continue to stunt production and trade growth, while market volatility is expected to worsen with central banks increasing interest rates to combat record-high inflation.
This is expected to have a spillover effect on global GDP growth, which is projected to range between 3.3% to 4% this year, and between 2.5% to 3.2% in 2023 — compared to 5.7% in 2021 — depending on how the crisis unfolds. Global inflation could also average between 4.5% to 7.7% this year, and between 2.9% and 4.3% in 2023.
These were key findings from the KPMG Global Economic Outlook H1' 2022 report, which highlights social and fiscal issues that businesses will likely face in the short to mid-term. The report brings together the expertise of our global organisation’s economists who represent 17 countries across three major regions.
Balancing costs with competitiveness
“Many ASEAN countries, including Singapore, have signalled their intent to accelerate economic recovery as they move towards an endemic COVID-19 phase. However, as KPMG’s 2022 Global Economic Outlook report has indicated, growth will likely be tempered due to immediate challenges such as the impact of the Russia-Ukraine conflict, higher commodity prices, the latest Omicron wave in China and rising global interest rates.
“Meanwhile, inflation rates are trending upwards across the ASEAN region, though they remain relatively low by global standards. An exception is Singapore, with inflation currently at a nine-year high of 4%. All eyes will be on the Singapore Government’s delicate dance in tackling the rising costs for households and businesses while ensuring that the economy remains competitive.”
KPMG in Singapore
Global growth outlook: Wading in choppy waters
From supply chain issues to shortages in resources like steel and natural gas, the conflict in Ukraine has severely undermined trade and production routes resulting in an upheaval of key industries. As the war worsens, so does the global economic outlook.
Here are three key scenarios that could occur, based on our analysis, depending on how the crisis evolves. The scenarios, developed by KPMG, examine the prospects for the world economy. The cut-off point for all forecasts was 25 March 2022.
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Our main scenario assumes that world oil prices will be US$30 higher than their path prior to the escalation of the Russia-Ukraine crisis, while gas prices will be 50% higher across Europe. It also accounts for a 5% rise in global food prices.
A more severe scenario studies the potential impact of world oil prices increasing by US$40 with a 100% rise in gas prices for Europe and a 50% rise in gas prices for the rest of the world. The downside scenario assumes a 10% hike in global food prices.
Our upside scenario looks at possible outcomes if the conflict is resolved sooner than expected, with prices returning to early February levels and production and trade flows restored.
Risks to our forecast are currently skewed to the downside, with more insights available in our report.