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IMF Economic Outlook: Slowdown Ahead?

The International Monetary Fund has cut its global growth projections for 2022 and the forthcoming 2023, following tightening global financial conditions and economic shocks. Amid a hesitant recovery after the COVID-19 pandemic, the world economic condition is expected to become even more gloomy and uncertain. The IMF projected the world’s economy to rise 3.2% in 2022 and to moderate to 2.9% in 2023. This downward revision of global growth is driven by the sharp slowdown in the US and China’s economy, reflecting the downside risks prediction in April 2022. These risks are materializing as the US hits the highest inflation in 40 years, tightening global financial conditions caused by steeper interest rate hikes by central banks to ease inflation, China’s economic slowdown due to extended lockdowns, and the Russia-Ukraine invasion, which resulted in global output contracting in the second quarter of this year. Furthermore, inflation worldwide, mainly led by rising food and energy prices, is the most prominent concern among these economic shocks. In the United States, the consumer price index rose 9.1% in June compared to a year earlier. CPI in the United Kingdom also increased by 9.4% in May 2022 — the highest inflation rate in both countries in 40 years. In the Eurozone, inflation reached 8.6% in June 2022, its highest level since the establishment of the monetary union. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and tight labor markets. In response to the rising prices, tighter monetary policy to tame inflation should be policymakers’ main priority.

Worsening growth prospects are driven by stalling of the world’s largest economies. The unfavorable data and sentiments in the US, China, and the Eurozone have significant consequences on the global outlook. The United States GDP outlook was lowered by 1.4% to 2.3%, caused by weaker-than-expected performance in the first half of 2022, reduced household purchasing power, and tightening monetary policy. The country is expected to have real GDP growth of only 0.6% in the fourth quarter of 2023 on a year-on-year basis, making it increasingly challenging to avoid a recession. Across the world, Following prolonged COVID-19 lockdowns and the exacerbating real estate crisis, China’s economy grew 1.1% short of prior estimates. The world’s second-largest economy is expected to grow by only 3.3% in 2022 — its lowest in four decades. Meanwhile, the Eurozone’s outlook decreased by 0.2% to 2.6%, with predictions that more significant fallout from the war was likely to hit further in 2023. However, the IMF stated that Russia’s economy contracted less than predicted in the second quarter despite the imposed economic sanctions. Its 2022 projection was revised up 2.5%, though its estimated growth rate remains negative at -6.0%. Apart from the advanced economies, developing economies are also forecasted to slump as inflation is expected to be around 9.5%. The IMF also warned of more problems emerging as the Fed raises interest rates. Higher rates are expected to strengthen the US dollar further as investors plow into US Treasury bonds. This could induce a surge in debt distress and amplifies inflation in emerging markets by pushing imports to be more expensive.

Amid the global growth downturn, the Indonesian economic sentiment remains relatively positive - with inflation lingering below 5% and trade surplus remaining at a high for 26 months consecutively. The Minister of Finance, Sri Mulyani Indrawati, conveyed that the synchronization and collaboration of both fiscal and monetary policy between Bank Indonesia and the Ministry of Finance are crucial to the pillar of Indonesia's economic stability. With a debt-to-GDP ratio of around 42%, a budget deficit of around 4%, and foreign exchange reserves of US$135 billion, Indonesia’s economy is relatively stable. According to the IMF, Indonesia could potentially swell 5.3% in 2022, considered a remarkable achievement in the midst of a downshift. The World Bank and Asian Development Bank also expected the Indonesian economy to rise by consecutively 5.1% and 5.2% in 2022. Indonesia's growth is predicted to be stable due to a significant rise in exports within the first half of 2022, increasing at an astounding 40.7% year-on-year, which led to a trade surplus of US$ 5.1 billion. Compared to the US and China, Indonesia’s performance is better as China has suffered a sharp decline from 8.1% to 3.3%, and the US economic growth fell from 5.7% in the previous year to 2.3% this year. According to a survey conducted by Bloomberg, Indonesia has a very small 3% risk of entering a recession, a smaller potential than other countries. Summing up, with the global economic slowdown and the possibility of an upcoming recession, Indonesia persevered to maintain a positive economic performance with stable growth.




International Monetary Fund

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