Bracing for change
Several forthcoming changes cloud the outlook for 2022. The major change domestically is the midyear change in government that introduces some degree of policy uncertainty. The major change externally is the impending US Fed policy rate hike that raises risks for emerging markets, especially those with perceived deteriorating fundamentals. On the health front, there is possibly light at the end of the tunnel if Covid-19 has transitioned into an endemic disease.
In this environment, we expect the economy to grow at 6% this year and 5.5% next year, both below consensus. Our set of forecasts factors in orderly elections, probable pauses in activity to manage continuing health risks, and generally supportive macroeconomic policies but with policy headroom constrained by tightening global financial conditions and continuing inflation risks. Although downside risks are still dominant in the short term, foreign investment reforms introduced lately could serve as a springboard for higher economic growth over the medium term. The latter depends on the next administration’s building upon the good reforms accumulated over successive administrations.
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