Asian Economy Facing Stagflation From Russia-Ukraine War

The Asian region is expected to face the prospect of “stagflation” with lower economic growth than previously estimated, and higher inflation due to the impact of the Russia-Ukraine conflict.

This was stated by the Acting Director of the IMF (International Monetary Fund) Asia and Pacific Department, Anne-Marie Gulde-Wolf in a press conference on Tuesday (26/4/2022).

“Monetary tightening will be needed in most countries, with the pace of tightening dependent on developments in domestic inflation and external pressures,” said Anne-Marie, quoted by Channel News Asia, Tuesday (26/4/2022).

Read Also: The world economic impact of the Ukraine-Russia conflict

The regional outlook, which follows the World Economic Outlook released last week, shows Asia’s economic growth forecast is cut to 4.9 percent, influenced by the slowdown in the easing of lockdowns in China, which has had a major effect on other economies.

Asian inflation is now expected to rise to 3.2 percent this year, a full point higher than expected in January 2022, according to Anne-Marie.

But Anne-Marie also said that “Despite the downgrade, Asia remains the most dynamic region in the world, and an important source of global growth”.

But the Russo-Ukrainian conflict and Western economic sanctions against Moscow have raised prices for food and fuel around the world, while major central banks are raising interest rates to fight inflation, which will put pressure on countries with high debt burdens.

Anne-Marie added that China’s prolonged Covid-19 lockdown, and a longer-than-expected slump in the property market also presented “significant risks for the (Asia) region”.

“This is a challenging time for policymakers as they try to cope with pressures on economic growth and tackle rising inflation,” the IMF official said.

The International Monetary Fund (IMF) had previously cut its forecast on global economic growth in the next two years due to the Russia-Ukraine conflict.

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“The economic impact of war is spreading far and wide,” the IMF said in its latest outlook report.

The IMF now expects the world economy to grow 3.6 percent in 2022 and 2023. The new figure marks a sharp decline from 6.1 percent growth in 2021.

The new forecast also marks a downgrade of 0.8 and 0.2 percentage points, respectively, from January’s forecast.

The IMF also expects Ukraine’s economy to shrink 35 percent this year, while Western efforts to pressure Russia may allow its economy to contract 8.5 percent.

But as the war has led to spikes in energy and other commodity prices, exacerbated supply chain problems and met expectations of more persistent inflation, the IMF sees the impact to be more widespread.

IMF warns Ukraine could be in recession if Russia invasion continues
The International Monetary Fund (IMF) also said that a Russian invasion could plunge Ukraine into a severe recession, although the country’s banking system and debt payments could be made in the short term.

Quoted from Channel News Asia, the IMF warned that war could have a wider impact, including threatening global food security by causing prices to rise and hampering agriculture in Ukraine, especially wheat.

“At a minimum, the country will see output fall 10 percent this year, assuming a speedy resolution of the war,” the IMF said in an economic analysis of Ukraine after Russia’s invasion.

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Citing wartime or conflict data in Iraq, Lebanon, Syria and Yemen, the IMF said “annual output contraction could eventually be much higher, in the 25-35 percent range”.

Last 2021, Ukraine’s economy grew 3.2 percent amid record wheat harvests and strong consumer spending.

But after Russia’s invasion on February 24, 2022, “the economy in Ukraine changed dramatically”, said Vladyslav Rashkovan, alternative executive director for Ukraine on the IMF board.

This included the destruction of health facilities, schools, residents’ homes, as well as “tens of kilometers of roads, and countless critical infrastructure objects,” the official said in a statement.