Global Economic Challenges
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After experiencing a strong recovery in 2021, the global economy is predicted to experience a slowdown in 2023.
The economies of developing countries are not predicted to be able to return to their pre-pandemic trend in 2022, in contrast to developed countries which are predicted to return to pre-pandemic trends.
The global economic slowdown was caused by the imbalance in global vaccination rates between countries, the spread of new Covid-19 variants, tighter fiscal and monetary policies, continued supply chain disruptions, and the impact of bruises due to the Covid-19 pandemic (scarring effect).
The bruises are also reflected in the financial condition of corporations, which in turn poses a risk to the resilience of the financial system.
Restrictions on social activities due to the pandemic caused a decline in business activity, resulting in a decline in sales, liquidity, profitability, and corporate capital.
The level of debt (leverage) has increased since the pandemic in both developed and developing countries. Several cases of corporate failure were also reported in the United States and China.
Meanwhile, the issue of China’s policy changes related to plans to switch to renewable or environmentally friendly energy poses increased financial risks, with many carbon-intensive companies facing lower profitability and liquidity vulnerabilities.
From the monetary-fiscal side, imbalances in the normalization of monetary and fiscal policies in several countries in response to high inflationary pressures and efforts to reduce fiscal budget deficits have led to tight global liquidity.
Developments at the end of 2021, the Central Bank of the United States has announced a more rapid monetary policy tightening cycle. Meanwhile, the Central Banks of Korea, Norway, Russia and New Zealand have raised interest rates due to inflationary pressures in line with increased economic activity and indications of emerging risks to financial stability.
This dynamic has prompted market participants to predict a faster Fed Funds Rate increase, namely in the first half of 2022 with a total increase of 75 bps for 2022.
The existence of global geopolitics, in the form of tensions between Russia and Ukraine, has also triggered global uncertainty. This puts negative pressure on the economy, in particular, could affect the outlook for economic recovery, volatility in financial markets, and global trade flows.
With these developments, world economic growth is predicted to slow down in 2022, after rebounding in 2021.
The International Monetary Fund (IMF, July 2022) again lowered its forecast for global economic growth to 3.2 percent from 3.6 percent in 2022, triggered by uncertainty due to the wider impact of the war between Russia and Ukraine.
The impact of the war has exacerbated supply chain disruptions, increased prices for commodities, especially energy, persistent inflationary pressures, and risks to food security. Other international institutions, the World Bank and the Organization for Economic Co-operation and Development (OECD) project global economic growth in 2022 at 2.9 and 3.0 percent, respectively.
Resources : Bappenas