Global GDP growth likely to fall

Many central banks will tighten interest rates this year on rising inflation expectations, says analyst 

By ANIS HAZIM / Pic By TMR

FROST & Sullivan expects global GDP growth to drop to 4.5% from its original forecast of more than 5% due to the impact of the Omicron variant, supply disruptions, surging inflation and an economic slowdown in China. 

Its Asia-Pacific (APAC) MD and partner Shivaji Das expects many central banks will tighten interest rates this year on rising inflation expectations. 

“We will see a tightening of interest rates in many countries but the relatively low-interest rates environment will continue in most economies,” Shivaji said at the Frost & Sullivan APAC Perspective: What are the Transformational Opportunities in 2022 webinar yesterday. 

The consultancy firm noted that crude oil prices will remain strong in 2022 due to waning inventory levels and contained supply increases further compounded by supply disruptions due to Russia-Ukraine war and Omicron.

“The price of crude oil is expected to trend lower in the second half of the year with a successful Iran deal, settlement of the Ukraine-Russia conflict and higher production levels by OPEC, the US and other countries,” he said. 

Nevertheless, Das expects the Brent crude oil contract price to average US$100 (RM418) a barrel this year compared to US$70.90 per barrel last year. 

“We have projected the price to go up about US$110, but it has already hit US$139 on Monday. We believe overall it might average around US$100 for this year but depends on many factors,” he noted. 

In contrast to the synchronised rate cuts undertaken by central banks in 2020 as the Covid-19 pandemic spread, Das expects to see varying monetary policy changes in 2022. 

“While the rising inflationary pressures need to be controlled, risk looms from pre-mature rate hikes that could derail the recovery process,” he added. 

He expects the individual policy decisions will be closely tied to the pandemic’s trajectory and potential restrictive measures. 

“Potential rate hikes in developed countries can trigger sell-offs in emerging markets as investors shift to developed markets,” he warned. 

Moreover, Das foresees strong expectations in salary growth across developed and emerging markets. 

“There is a shortage of skilled manpower while inflation will lead to growth in sala- ries and wages across economies,” he said. 

He expects the sustained growth environment will provide room for debt levels of governments, households and corporates to further decline in 2022. 

“Some governments could embark on fiscal consolidation (expenditure cutback or tax hikes) by late 2022 or 2023 to reduce the debt pile-up from the pandemic,” he said. 

From a regional perspective Das expects the Indonesian economy to grow strongly this year supported by consumer spending, especially in the services sector, and the booming commodity sector. 

Das added that Thailand, Malaysia, Vietnam and Australia will benefit from the opening up of their borders while their respective manufacturing sectors continue to rebound from the impact of the pandemic.