Overview

• Inflationary pressures have persisted – with advanced economy consumer prices rising at their fastest pace since late 1982. While a range of central banks have started to raise policy rates, tighter monetary policy will only temper the demand side of the inflation equation, with various supply side pressures continuing. China’s zero-COVID response to recent outbreaks has seen vessel queues grow in March and April. A lack of spare capacity in global container shipping means that this could disrupt the movement of goods for months to come. Similarly, the Russia-Ukraine conflict continues with no end in sight, which (having already hit energy markets) could impact global grain and fertiliser supplies, driving up already high food prices in coming months.
• Global PMI surveys point to a large divergence between advanced economies (where readings have remained strong) and emerging markets (where the weakness reflects China’s large weight in the measure). In part this divergence reflects the differing stages of the pandemic in these regions, with most advanced economies having a high degree of effective vaccination against COVID-19, meaning they can withstand large scale outbreaks without a major impact on health systems or activity. Many emerging markets have either lower vaccination rates or less effective vaccines, increasing the risk of disruptions to activity in these countries – as exhibited by the lockdowns currently in place in China.
• We now expect the global economy to grow by around 3.4% in 2022 and 2023 (down from 3.7% and 3.5% respectively previously). The key drivers of the weaker outlook in 2022 are the lower growth rates for China and the United States. For 2024, we see growth slowing to 3.1% – well below the long run average of 3.5% – reflecting the lagged impacts of monetary tightening and of the large increase in energy prices.

For further details, please see The Forward View – Global (May 2022)