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Two years into the pandemic, COVID-19 continues to take
surprising turns, disrupting the global economy through multiple
channels—public health, work, education, travel, consumer
spending patterns, production of goods and services, and
international trade flows. Just as regions were rebounding from the
Delta variant, the Omicron variant emerged, sending global COVID-19
infection rates to new highs. As 2022 begins, economies are
adapting to the new, highly contagious variant. While considerably
milder than previous strains, Omicron is dampening supply and
demand in the most-affected regions, delaying resolution of market
imbalances.
Global economic growth will slow.
After a 3.4% contraction in 2020, world real GDP rebounded an
estimated 5.6% in 2021, reaching a new high in the first quarter.
Global growth is projected to slow to 4.2% in 2022, slightly below
last month's forecast owing to weaker performances in Western
Europe, North America, mainland China, and Japan. Just as the 2021
rebound was broadly based, most regions will experience a
deceleration in 2022. A notable exception is the Middle East and
North Africa, where higher oil export revenues will spark a pickup
in growth. Global real GDP growth will settle to 3.4% in 2023 and
3.1% in 2024 as fiscal and monetary policies tighten and pent-up
consumer demand is satisfied.
With shipping bottlenecks and some critical supply
shortages persisting, global price inflation will remain high in
2022.
Global consumer price inflation reached 5.2% year on year (y/y)
in November and December 2021, its highest pace since September
2008 (Venezuela and Zimbabwe are excluded from all aggregates
because of distortions caused by hyperinflation). Worldwide
inflation will likely remain near 5.0% in early 2022 before
gradually easing in response to declines in industrial and
agricultural commodity prices. On an annual basis, global consumer
price inflation picked up from 2.2% in 2020 to 3.8% in 2021 and
will average 4.1% in 2022 before subsiding to 2.8% in 2023. Risks
to the inflation outlook are concentrated on the upside.
Labor shortages are also contributing to the rise in inflation.
In the United States, labor force participation remains below
pre-pandemic levels and job vacancy rates have risen to record
highs. Across Europe, COVID-19 has disrupted migrant labor flows.
Mainland China's zero-COVID policy and demographic shifts are
restricting labor supply. Wage pressures are most acute in service
sectors where workers are most exposed to the COVID-19 virus. The
business implications of labor shortages and continuing supply
chain disruptions are more automation of labor-intensive processes,
near-sourcing of supplies, and a reconsideration of lean inventory
policies.
The US economic expansion will face headwinds from
inflation and the withdrawal of fiscal and monetary policy
stimulus.
Thus, real GDP growth is projected to slow from 5.7% in 2021 to
4.1% in 2022 and 2.5% in 2023. On the positive side, healthy
household balance sheets, supportive financial conditions, and
employment gains will support continued growth in consumer
spending. There are early indications that the wave of Omicron
infections is subsiding in the areas that were hit earliest.
Meanwhile, inventory restocking will support near-term growth. With
headline inflation (measured by the Consumer Price Index) reaching
7.0% y/y in December and core inflation at 5.5%, the Federal
Reserve will likely start raising interest rates in mid-March,
sooner than previously expected.
Western Europe faces another bumpy ride in
2022.
After a mid-2021 growth spurt, eurozone growth has slowed
abruptly in late 2021 and early 2022 in response to record-high
energy costs, ongoing supply chain disruptions, and a widespread
increase in COVID-19 cases. As these headwinds ease, growth should
strengthen in the second quarter. The service-oriented economies in
southern Europe should benefit from a rebound in tourism and
travel-related activities in the third quarter. After a 6.4%
decline in 2020 and an estimated 5.2% recovery in 2021, eurozone
real GDP is projected to increase 3.7% in 2022 and 2.3% in
2023.
Mainland China's real estate downturn dampens economic
growth.
Real GDP growth slowed to 4.0% y/y in the fourth quarter of 2021
as the government's deleveraging campaign led to contractions in
real estate and construction activity. Meanwhile, the zero-COVID
policy, decarbonization drive, and regulatory crackdowns have
weighed on most sectors. Economic stabilization has now become the
top policy goal. The government started easing monetary policy in
late 2021 and will accelerate infrastructure investment in 2022.
Mainland China's real GDP growth is projected to slow from 8.1% in
2021 to 5.4% in 2022 and 5.3% in 2023.
Asia Pacific will lead global economic growth,
benefiting from trade liberalization.
The Regional Comprehensive Economic Partnership (RCEP) took
effect on 1 January 2022 for those countries that have ratified the
agreement—mainland China, Japan, South Korea, Australia, New
Zealand, Singapore, Thailand, Vietnam, Cambodia, Brunei, and Laos.
An important advantage of RCEP is its favorable rules of origin,
which will provide cumulative benefits along manufacturing supply
chains. This will help to attract foreign direct investment in
manufacturing and infrastructure projects in member nations. After
a mild 1.0% decline in 2020 and 6.0% growth in 2021, Asia Pacific's
real GDP is projected to expand 4.8% in 2022 and 4.5% in 2023.
Bottom line
The global economic expansion will continue at a moderating pace
in 2022 and 2023 alongside a transition from COVID-19 pandemic to
endemic. With supply disruptions continuing, inflation will remain
elevated in the months ahead, leading to monetary policy
tightening. As demand growth cools and supply chain problems are
gradually resolved, inflation will subside.
Posted 24 January 2022 by Sara Johnson, Executive Director – Economic Research, S&P Global Market Intelligence
Join our webinar as our subject matter experts walk through key trends affecting each stage of the supply chain and… https://t.co/mFpMs3XP5G
May 06
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