Lower growth prospects, inflationary pressures clouding global growth outlook: KPMG

GLOBAL inflation could average between 4.5 and 7.7 per cent this year, and between 2.9 and 4.3 per cent in 2023 depending on how the ongoing conflict in Ukraine evolves, according to KPMG's latest Global Economic Outlook.

Meanwhile, while inflation is picking up in Asean, unlike other parts of the world, momentum in prices is still relatively low. Consumer price inflation in Indonesia, Malaysia, Thailand and Vietnam for instance currently sit between 2 and 3 per cent.

This, noted the report, is largely due to fiscal support through the pandemic being generally smaller, resulting in a slower recovery in domestic demand and more muted local inflationary pressure.

Singapore stands out as an exception, with inflation currently at a 9-year high of 4 per cent. The forecast inflation rate for Singapore is 4.2 per cent in 2022 and 1.3 per cent in 2023.

"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," said Paul Kent, partner, advisory at KPMG in Singapore.

Indonesia was highlighted as being particularly vulnerable to negative shifts in market sentiment, with rising global interest rates making conditions more challenging for the central bank.

Malaysia, the Philippines and Thailand are also exposed to these spillovers and could be forced to raise domestic interest rates sooner than anticipated in response, said the report.

Separately, the shift in focus towards fiscal consolidation in countries such as Indonesia and Singapore will slow growth momentum. This, coupled with the exhausting of "easy wins" from the reopening, will take the pace of growth in many countries back towards long-run trend rates, stated the report.

It forecasts gross domestic product (GDP) for Singapore to come in at 4.4 per cent for 2022 and 3.3 per cent for 2023. For Indonesia, the GDP forecast is 5.1 per cent for 2022 and 5.3 per cent for 2023.

The forecast puts global GDP at between 3.3 and 4 per cent this year, and between 2.5 and 3.2 per cent in 2023.

These projections are based on 3 scenarios, with the main scenario assuming that world oil prices will be US$30 higher than their path prior to the escalation of the crisis while gas prices are 50 per cent higher across Europe. It also incorporates a 5 per cent rise in global food price.

A more severe scenario assumes world oil prices at US$40 higher with a 100 per cent rise in gas prices for Europe and 50 per cent rise in gas prices for the rest of the world. This downside scenario also assumes a 10 per cent rise in global food prices.

Both scenarios incorporate a 23 per cent rise in average metal prices and a 4 per cent increase in the cost of agricultural inputs.

The report's upside scenario looks at the possible outcome should the conflict resolve sooner than anticipated, with prices returning to early February levels and production and trade flows restored.