Growth Projection Slightly More Optimistic

The IMF projects global economic growth to reach 2.9 percent this year, higher than the previous estimate of 2.7 percent, which was stated in the October 2022 edition of the World Economic Outlook report.

KOMPAS/RADITYA HELABUMI

View of multi-storey buildings in Jakarta, Wednesday (18/1/2023) evening. Global economic conditions in 2023 are predicted to be full of uncertainties.

JAKARTA, KOMPAS — Entering 2023, the projection for global economic growth is slightly more optimistic even though it is still overshadowed by fears of a slowdown. The International Monetary Fund projects global economic growth to reach 2.9 percent this year, higher than the previous estimate of 2.7 percent, which was stated in the October 2022 edition of the World Economic Outlook report.

In its latest report, the January 2023 edition of the World Economic Outlook Update published on Tuesday (31/1/2023), the IMF predicts that the global economic growth will slow down from 3.4 percent in 2022 to 2.9 percent in 2023 and then rise again to 3.1 percent in 2024.

It is believed that the re-opening of the Chinese economy after being closed due to the spread of Covid-19 will encourage a faster recovery. Global financial conditions are also seen to be improving with declining inflation and the United States dollar starting to fall from its highest level.

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Global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023, then to 4.3 percent in 2024. Despite the downward trend, this projection is still above the pre-pandemic level of 3.5 percent.

According to the report, other slowdown risks, such as the ongoing Russia-Ukraine war and monetary tightening policies by central banks of developed countries, will still continue to bring economic uncertainty this year. However, these risks have begun to subside compared with October 2022.

The Chief Economist and Director of the IMF Research Department, Pierre-Olivier Gourinchas, said in a virtual press conference that the global economy had proven to be strong in facing pressures throughout the third quarter of 2022 with a resilient labor market, persistently high demand and good adaptability in responding to energy crisis in Europe.

”Inflation is starting to decline in a number of countries, although core inflation is generally still increasing. The strengthening of the US dollar has also begun to subside compared to its highest level in November 2022. This at least provides relief and can be a turning point for world economic conditions, especially for developing countries," said Gourinchas on Tuesday.

The IMF report predicts that economic growth in ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) will continue to slow down to 4.3 percent this year and then increase to 4.7 percent in 2024. Inflation in the developing countries group (emerging markets) is expected to fall from 9.9 percent in 2022 to 8.1 percent in 2023 and to 5.5 percent in 2024.

KOMPAS/PRIYOMBODO

Traders serve chili purchases at the Kebayoran Lama market, South Jakarta, Monday (2/1/2023). The price of red cayenne pepper has increased to IDR 80,000 per kilogram. Prices of some basic necessities fluctuate.

However, various risks must still be anticipated. Even though China has reopened its activity restrictions, economic recovery will still take time. This will impact the world economy in the form of restrained global demand and potential new problems in global supply chains.

On the other hand, the Russian-Ukrainian war, which has yet to come to an end, could escalate this year and put further pressure on inflation, which is actually starting to subside. "Oil, gas and food prices due to war and demand from China could further increase inflation and push back monetary tightening policies," the report said.

As the war continues, the geopolitical landscape is increasingly fragmented. Polarization will bring constraints to the flow of world trade, the global labor market and the international financial system and has the potential to hamper global economic recovery on an even basis.

Also read: Indonesia's Economy in 2022 and Prospects for 2023

The IMF also warned of the risk of increasing debt piles in developing countries. About 15 percent of low-income countries are currently facing a debt crisis with another 45 percent of countries at high risk of a debt crisis. Emerging market countries are not free from this risk, with 25 percent of countries potentially experiencing a debt crisis.

"The combination of high debt due to the handling of the pandemic, slow economic growth and higher borrowing costs has exacerbated the vulnerability of a number of countries' fiscal conditions," said Gourinchas.

In a press conference after the Meeting of the Financial Sector Stability Committee in Jakarta, Tuesday, Finance Minister Sri Mulyani Indrawati said global inflationary pressure had begun to ease, although it remained at a high level in line with the high prices of a number of energy and food commodities due to chain disruptions , as well as tight labor markets in the US and Europe.

In real terms, people's income is facing serious problems.

Monetary policy tightening by the central banks of developed countries is also expected to approach the peak point with interest rates that will remain high throughout this year. Nonetheless, uncertainty in global financial markets began to diminish.

"This has a positive impact on developing countries and such an impact has begun to be seen from increased global capital flows and less pressure from depreciating exchange rates in a number of countries," said Sri Mulyani.

However, Director of the Institute for Development of Economics and Finance (Indef) Tauhid Ahmad said inflation would still be one of the risks for Indonesia's economic slowdown. "In real terms, people's income is facing serious problems," he said.

This article was translated by Hendarsyah Tarmizi