Russia-Ukraine war hits global growth outlook, increases inflationary pressures: KPMG

The ongoing Russia-Ukraine war is set to lower the global growth prospects and increase inflationary pressures across the world, according to a report by KPMG.   The global GDP growth could range between 3.3-4 per cent this year and between 2.5-3.2 per cent in 2023, depending on various scenarios, the report, 'KPMG Global Economic Outlook', said, adding that the risks to its forecast are currently skewed to the downside.   The bi-annual report provides economic forecasts and analysis from KPMG's team of economists in territories and regions throughout the world. The latest edition, covering first half of 2022, warns that progress on global issues including public health and climate change has slowed as political and business leaders grapple with the broad implications of the war in Ukraine.   "The global economy emerged from the COVID-19 recession with higher public debt and as central banks raise interest rates, the servicing cost of sovereign debt also increases, making it particularly challenging for emerging countries whose debt is denominated in an appreciating US dollar," the report said.   With policymakers and many businesses still reeling from the consequences of the pandemic, it said, they are less ready to counter another significant economic shock.   KPMG said that the global growth outlook for the next two years will depend on how the conflict between Russia and Ukraine evolves. It has developed three scenarios to examine the prospects for the world economy.

  The main scenario assumes that global oil prices will be $30 higher than their path prior to the escalation of the crisis, while gas prices will be 50 per cent higher across Europe. It also incorporates a 5 per cent rise in global food prices. Meanwhile, a more severe scenario looks at oil prices being higher by $40, along with a 100 per cent rise in gas prices for Europe and 50 per cent rise in gas prices for the rest of the world.

Also Read: Zomato, Swiggy down for most users across India due to technical snag   The report's upside scenario looks at the possible outcome if the conflict is resolved sooner than anticipated, with prices returning to early February levels and production and trade flows restored.   "It is possible to envisage that the conflict between Russia and Ukraine escalates beyond the report's downside scenario, with cuts to energy supplies for example causing a significant disruption to production in parts of Europe. The COVID-19 pandemic is still causing shutdowns in major economies such as China, and a new wave could undo the progress in easing global supply chain blockages," the report said.  Indian economy   The report said factors such as opening up of mobility, growing consumer confidence, and high-capacity industrial utilisation point towards recovery in Indian economy. Besides, the increase in capital expenditure targets by the government and investments in infrastructure and manufacturing sector are expected to reduce the unemployment rate, which stood at a six-month high of 8.1 per cent in February 2022 as per CMIE data.   While Indian economy is expected to continue its positive growth trajectory, the report said that the recent geopolitical developments are hurting domestic stock indices and creating volatility in crude oil prices and exchange rates.

  "Given India's import dependence on crude oil, natural gas, and other commodities, a spike in inflation and in the current account deficit are aspects to be watched, particularly given the evolving geopolitical situation," the report said.   Besides, uncertainty about the fourth wave of COVID-19 infections and virus mutations pose a significant risk for future growth of the Indian economy, it added.

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