Inflation accelerates and growth slows, the International Monetary Fund notes the risks of stagflation in Asia

With weaker-than-expected economic growth and, conversely, high inflation, the risk of stagflation hangs over the Asian countries. According to the International Monetary Fund (IMF), Asia certainly remains the most dynamic region on the planet, but its prospects are “stagflationary and stagflation”, that is, it combines Slowing economic growth and high inflation.

Reducing growth forecast to 4.9% in 2022

Against the background of the war in Ukraine, the re-emergence of the Covid-19 epidemic and tighter financial conditions, the International Monetary Fund revised the forecast for Asian GDP growth to 4.9% in 2022 from 5, 4% in January, which is much lower than what was observed. last year (+6.5%). This sharp slowdown is coupled with accelerating inflation. While price growth has been much lower than in other regions, the International Monetary Fund says it is expected to reach 3.4% in 2022, one percentage point higher than forecast in its January forecast. In Japan, for example, consumer prices experienced their strongest acceleration in more than two years in March, on the back of higher energy prices intensified by the war in Ukraine. Prices excluding fresh products rose 0.8% last month over one year, a very modest acceleration compared to the higher inflation seen in the US or the eurozone, but nonetheless the highest for the archipelago since January 2020.

The advanced economies of the region are the hardest hit by the drop in demand from Europe, which was severely affected by the Russian war in Ukraine. Emerging markets are suffering from the effects of rising global commodity prices, exacerbated by this conflict.

In detail, the IMF forecasts growth of 4.4% in China (-0.4 percentage points compared to the January forecast), 2.5% in Korea (-0.5 points), 2% and 4% in Japan (-0.9 points) and 8.2% in India (-0.8 points).

The risk of fragmented supply chains

Anne-Marie Goldie Wolfe, Deputy Director, Asia Pacific Division. He believes that “given the close trade relations in Asia, a larger-than-expected slowdown in China due to a prolonged shutdown or due to a longer-than-expected collapse in the housing market poses a significant risk to the region”.

In the medium term, she continues, the potential fragmentation of supply chains resulting from geopolitical tensions poses “a significant risk to a region that has benefited from globalization and relative peace in recent decades.”

In a blog co-authored with Sanjaya Panth and Shanaka Jayanath, two other district officials, she recommended that authorities protect the most vulnerable from rising fuel and food prices.

“Social unrest has already erupted where such pressures are exacerbating vulnerabilities, as in Sri Lanka,” they wrote.

But they point to promising examples in the region of “targeted and temporary” protection, such as the Philippines’ cash transfer program or New Zealand’s public transport price cuts.

The specter of stagflation and high unemployment threatens France (Matthew Blanc)


ZOOM- China Restrictions and Strong Dollar Curb Oil

Oil prices lost steam a bit on Monday with concerns that a possible blanket containment in China, to deal with the resurgence of Covid-19 in Shanghai and Beijing, could lead to a drop in energy demand. The idea that restrictions could prevent travel but also limit industrial activity caused Brent to lose 4.06% per barrel for delivery in June, which ended at $102.32.

During the session, the price of a barrel of oil from the North Sea briefly fell below the $100 mark at $99.66 (-6.55%) for the first time in two weeks. The price of West Texas Intermediate barrel for delivery in the same month, the American record, fell 3.45% to $ 98.54. It also fell during the session to the threshold of $95 (-6.50%), near its lowest level since the start of the war in Ukraine.

According to analyst Bob Yawger of Mizuho USA, demand for Chinese crude has already fallen by 1.2 million barrels per day due to the severe health restrictions put in place in Shanghai. A character can grow, he says. Chinese demand for certain types of fuels (gasoline, diesel and aviation kerosene) also decreased by 20% in April 2022 compared to the previous year, according to Bloomberg Agency reports, citing sources in the Ministry of Health. As a reminder, China is the largest importer of crude oil.

Since the beginning of April, nearly all of Shanghai’s 25 million residents have been quarantined.

Beijing has been under the threat of confinement since Monday after a rare epidemic broke out in the capital, while intensive checks are being carried out in the middle of the street and supermarkets are stormed.

Another factor weighing on crude oil prices: the rising dollar. Against the euro, the dollar is at a 25-month high.

“A strong dollar is not helping oil prices and it should not help as the Fed is preparing to raise interest rates probably by 50 basis points on May 4th,” Bob Yoger said.

The US central bank is expected to raise interest rates by this size at least four times in a row, investors believe, helping the dollar become more profitable. In Libya, production has resumed at sites disrupted by the shutdown, the energy minister told financial agencies.

“However, it is unlikely that oil prices will fall further as Russian production continues to decline,” said Karsten Fritsch, analyst at Commerzbank.

Barrel prices have remained high over six months at over 16% for Brent and over 14% for WTI, while aluminum has gained more than 7%.