IIF cuts 2022 global GDP growth estimate in half, flows to EM to drop 42% -Breaking
NEW YORK (Reuters] – The Institute of International Finance reduced its 2022 global output growth outlook by half. This was due to the impact of Russia’s invasion of Ukraine on the economy, China’s response in COVID-19 waves, and tighter monetary policies in the United States.
IIF expects that capital flows to emerging market economies will shrink by 42% compared to last year.
According to its latest estimates, global banking trade group stated that recession risk has risen while true growth is expected to plateau.
IIF economists said in a report, “Weakness can be broad-based and has little room for error,” Global recession risks are elevated. We expect that non-resident flows into emerging markets will slow substantially in this environment.
IIF reduced its projection for global GDP growth from 4.6% to 2.3%. This year, G3 — the United States of America, Japan and Europe – grew at a 1.9% annual rate. According to the IIF, China’s GDP growth is expected to slow down to 3.5%, from 5.1% as per their previous estimates.
According to the IIF, “The Omicron Wave in China is much more disruptive that we expected and will have an enormous impact on growth as well as capital flows.”
Prior to the invasion of Ukraine, growth in the Euro area fell from 3% down to 1%. Importantly, the statistic carryover for 2021 to this year of 1.9 percentage points means that this forecast predicts a fall in GDP during the second half.
The IIF predicts that Latin America’s growth will be slightly quicker at 2%, owing to the high prices of commodities. It also expects some resilience from North African and Middle East oil exporters.
FOOD SCARCITY A RISE
The IIF warned that there is a large risk of food insecurity worldwide. This was due to Russia’s and India’s bans on exporting agricultural products, and the likely interruption of the sowing and harvesting of Ukraine. Africa and the Middle East are most likely to be the worst affected.
The IIF stated that Asian countries were less likely to be affected by the shock caused by the Ukraine war. This is due to their more rice-focused diets. In recent years, rice prices have been relatively stable and seem to be less affected overall.
Capital flows to emerging markets and 2022 estimates https://graphics.reuters.com/EM-FLOWS/IIF/dwvkrnjeqpm/chart.png ba1cffb8-3f81-4385-8e90-09f28227ee271
According to the report, capital flows to emerging market countries are likely to slow down “significantly”, with nonresident flows falling to $972 billion from $1.68 Trillion last year. This figure falls to $645billion if China is excluded, down from $1.0 Trillion.
Russia, which received over $58billion last year, can be seen posting $29 billion of outflows. China is the biggest single recipient and is expected to absorb $327 billion from $668billion in 2021.
Mexico, Argentina, Venezuela, and Venezuela will be among few Latin American countries to experience an increase in total flows this year. But, all three cases are from a subdued level. Brazil flows are expected to drop almost half to $55.3 billion.