Daewoeyeon Forecasts 4.6% Global Economic Growth Next Year... High Oil Price Trend Continues

KIEP '2022 World Economic Outlook Report'

[Sejong=Asia Economy Reporter Son Seon-hee] The Korea Institute for International Economic Policy (KIEP) forecasted that the global economy will grow by 4.6% next year. As the COVID-19 pandemic enters a stabilization phase and major countries such as the United States are expected to normalize their monetary policies, the projection was raised by 0.3 percentage points from the previous forecast of 4.3%.

However, high international oil prices are expected to persist next year. While the economic recovery trend in advanced countries is expected to continue, the key to global economic growth next year will be how effectively emerging countries control the resurgence of the Delta variant that began in the second half of this year, KIEP added.

On the 12th, KIEP released the "2022 World Economic Outlook Report" containing these details. The global economic growth forecast by KIEP is lower than the 4.9% projected by the International Monetary Fund (IMF) but slightly higher than the 4.5% forecast by the Organisation for Economic Co-operation and Development (OECD).

KIEP forecasted that the economic recovery trend in major advanced countries will continue next year, but the United States is expected to grow by only 3.8% annually due to the recently passed reduced infrastructure investment bill, policy delays related to political schedules such as the midterm elections, Federal Reserve tapering, and interest rate hikes.

The European Union (EU) region and the United Kingdom are expected to grow by 4.6% and 5.3%, respectively, as consumption, exports, and investment all increase. The growth rate for the European region was revised upward by 0.4 percentage points from the previous forecast of 4.2%.

Japan is expected to grow by 3.3% annually, based on expanded investment demand in new growth industries.

Emerging countries’ pace of economic recovery will vary depending on how well they control the resurgence of the Delta variant. China is forecasted to grow by a slightly lowered 5.5%, while mentioning risk factors such as industrial regulations, power shortages, potential default risks of real estate companies, and the re-ignition of U.S.-China conflicts.

KIEP President Kim Heung-jong said, "The key theme for global economic growth is 'Global Great Transformation,'" adding, "As the pandemic enters its third year, more countries are attempting to live with COVID-19." He continued, "Although normalization is underway, it will likely be very different from the pre-pandemic period," and said, "Along with changes in lifestyles, policies for digital transformation and green transition on a global scale are being promoted."

He further stated, "From 2022, this global great transformation is expected to become more visible," and "Economically, massive investments toward building human and physical infrastructure are planned, which raises expectations and revitalizes the global economy."

However, he cautioned, "Because this is a major change following a significant shock, unexpected situations may arise," citing fiscal issues related to the transformation, adaptation and bottlenecks, and uncertain international cooperation environments as major risk factors.

President Kim said, "As seen in the sharp increase in our exports despite the progression of the COVID-19 pandemic, our economy is greatly influenced by changes in the external environment," and added, "Amid the ongoing global great transformation, we will prepare well for major risk factors to achieve economic recovery and structural reform."

Meanwhile, KIEP forecasted that the sharply rising international oil prices this year will continue into next year. KIEP stated, "As tight supply and demand conditions in the oil market are expected to persist, international oil prices in 2022 will remain at levels similar to this year," and explained, "Although global oil supply will expand due to gradual easing of production cuts by OPEC+ and increased oil supply from non-OPEC countries such as the U.S., it is expected to fall short of demand recovery."