Overview

• Financial market confidence was shaken in late November, due to the emergence of the Omicron variant of COVID-19 along with expectations that monetary policy may tighten faster than previously expected. At the time of writing, it appears that the Omicron variant is more contagious than earlier variants, but whether it constitutes a major impediment to the outlook will depend on the combination of transmissibility/virulence and vaccine effectiveness (and how this affects health system capacity), which still remains unclear.
• We have revised our forecasts for the US Fed, with three rate rises expected next year, starting in Q2 2022. In contrast, the People’s Bank of China recently eased policy through a cut to its Reserve Requirement Ratio.
• Inflationary pressures have continued to increase in recent months. Producer prices among the big advanced economies are near peaks last seen in the early 1980s.
• Advanced economy growth was robust overall in Q3, and a similar outcome is expected in Q4 albeit with a shift in the source of growth away from Europe towards the US and Japan, partly reflecting the timing of recent COVID waves. Auto sector production appears to have turned the corner which boosts the growth outlook, although a full recovery in the sector is a way off and, more broadly, supply constraints remain evident, including in labour markets. The JP Morgan global composite PMI remained at a robust level in November, but underlying conditions are disparate across the globe –with stronger readings among advanced economies than emerging markets.
• Overall, our forecast for global economic growth in 2021 is marginally weaker –expanding by 5.6% (from 5.7% previously), the equal strongest increase since 1973. There are modest changes to the out-year forecasts, with 2022 marginally lower at 4.4% (4.5% previously), while 2023 is marginally stronger at 3.6% (from 3.5% –the global long term average growth rate).

For further details, please see The Forward View – Global (December 2021)