Growing workload, hampered recovery and rising inflation
The global economy will enter 2022 in a weaker position than expected. As the new variant of COVID-19, Omicron, spreads, countries are once again restricting travel. Due to rising energy prices and supply disruptions, inflation is higher and wider than expected, especially in the United States and many emerging market and developing economies. Growth prospects were also overshadowed by a slowdown in China’s real estate sector and a slower-than-expected recovery in private consumption.
Global growth is expected to decline from 5.9% in 2021 to 4.4% in 2022, half a percentage point lower than forecast in the October Economic Outlook (WEO), mainly due to a downward revision in forecasts for two largest economies. When the assumptions are revised to remove the “Best Back Better” fiscal package from the base case and include an early withdrawal of monetary support and a persistent supply gap, US growth prospects will deteriorate by 1.2 percentage points. In China, disruptions related to the zero-tolerance policy against COVID-19 and lingering financial difficulties in the real estate development sector led to a downward revision of 0.8 percentage points. Global growth is expected to slow to 3.8% in 2023. If this figure is 0.2 percentage points higher than previous forecasts, then this is largely due to the recovery, which will mechanically take hold after the second half of 2022 g. growth. The forecast is based on an improvement in the health situation in most countries by the end of 2022, i.e. an increase in the level of vaccination worldwide and an increase in the effectiveness of treatment.
High inflation is expected to persist longer than the October World Economic Outlook projected as supply chain disruptions and high energy prices are expected to persist into 2022. a decrease in demand in 2022 and the entry into force of monetary policy in the leading countries of the world.
Risks associated with the global benchmark are skewed to the downside. The emergence of new variants of COVID-19 could prolong the pandemic and cause further economic disruption. In addition, supply disruptions, energy price volatility and local pressure on wages are driving high inflation and policy uncertainty. Raising policy rates in advanced economies could jeopardize financial stability and pose risks to capital flows, currencies, and public finances in emerging market and developing economies, especially as debt levels have risen significantly over the past two years. Other global risks could emerge as geopolitical tensions remain high and, given the climate emergency, the likelihood of major natural disasters remains very high.
Knowing that the pandemic continues to have an impact, an effective global health strategy is needed more than ever. It is critical that all countries have access to vaccines, tests and treatments to reduce the risk of dangerous new variants of COVID-19 emerging. Thus, it is necessary to stimulate production, improve distribution systems in countries and ensure more equitable international distribution. In many countries, governments will need to continue to tighten monetary policy to contain inflationary pressures, while fiscal policy, which has more limited wiggle room than at the start of the pandemic, should focus on health and social spending by giving priority to the most affected. In this regard, international cooperation will be essential to maintain access to liquidity and expedite orderly debt restructuring, if needed. It is critical to invest in climate policy to prevent the catastrophic effects of climate change.