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The Institute of International Finance (IIF) has cut its 2022 global growth outlook in half, citing the spillover effects of Russia’s invasion of Ukraine, China’s lockdowns in response to resurgent COVID-19 wave and tighter monetary policy in the US.
"We expect global growth of around 2.3 percent in 2022, compared to our earlier forecast of 4.6 percent," IIF said in a new report.
The institution said since it first warned of a recession in the Euro area, the global picture has grown more challenging with the Omicron wave in China set to take a substantial toll on growth and capital flows. “Separately, US financial conditions are tightening rapidly, with the rise in long-term real rates now comparable to the 2013 taper tantrum. Finally, the war in Ukraine is ongoing and could escalate. The confluence of these shocks threatens the global economy and raises the risk of a recession."
The IIF also expects capital flows to emerging markets to slow by 42 percent from last year.
According to the institution, the Ukraine-Russia conflict will significantly impact global growth and inflation via commodity prices, particularly grains and energy, which have soared in recent months.
With Russia and now India banning grains export, and Ukraine likely to see its agricultural output and exports hit by the war, there is widespread risk of global food insecurity, IIF said, with countries in MENA and Sub-Saharan Africa likely to be badly hit.
However, for MENA oil exporters, IIF sees a return to strong growth and large current account surpluses. "For the MENA region as a whole, the aggregated current account surplus will surge from $120 billion in 2021 to around $400 billion in 2022, with the GCC accounting for 90 percent of the total."
(Writing by Brinda Darasha; editing by Seban Scaria)
