The pandemic is not yet over but economies around the world are learning to live with it.

The global economy entered its recovery phase in 2021, with economies gradually reopening and vaccination campaigns getting underway. However, the pandemic is not yet over. More transmissible coronavirus variants have triggered several new waves of infection, forcing many governments to impose new restrictions.

At the same time, the global economy is challenged by supply bottlenecks and higher energy prices. This is leading to inflationary pressures. We think these will abate, helped by modest monetary policy tightening. We consider an intensification of the pandemic to be the main downside risk to our growth outlook. A faster spread of infections combined with more measures could push the global economy into a stagflation scenario, low growth and high inflation.

Key points

  • The reopening of economies led to a reasonable 5.8% global GDP growth in 2021, which is likely to be followed by a somewhat lower 4.2% growth in 2022 and 3.6% in 2023. The pandemic will continue weigh on global economic activity but we expect a prolonged recovery as economies adapt.
  • Inflation has been accelerating around the world, fuelled by higher energy and commodity prices, soaring transport costs and value chain bottlenecks. We still see this as a transitory process but it is forcing central banks to begin reversing monetary stimulus more quickly than expected. Tight labour markets and strong demand allow some room for this but it is a challenging balancing act in a fragile, unprecedented recovery.
  • Global trade has by now recovered from its 2020 loss, though goods trade recovered much faster than services trade. Recently, the recovery of goods trade has been hampered by several disruptions, including transport difficulties and factory closures in Asia. We expect trade growth to return to ‘normal’ over the forecast period, moving in line with global GDP growth.
  • The economic recovery across advanced markets is losing some steam. Supply chain disruptions and government restrictions are weighing on economic activity, leading to 3.8% GDP growth in advanced markets as a group in 2022, followed by 2.3% in 2023. Fiscal and monetary stimulus is being withdrawn but the advanced market economies have proven resilient and are expected to recover to pre-pandemic output levels over the forecast horizon.
  • Emerging market economies (EMEs) as a group are forecast to grow by 4.6% in 2022 and 4.8% in 2023. Vaccinations will become more widely available this year, which could help output growth and improve consumer confidence. On the other hand, they will also enjoy significantly less monetary and fiscal support in 2022 compared to advanced markets. We expect Emerging Asia to remain the region with the highest growth rate among EMEs.
  • An intensification of the pandemic is the key risk to our outlook, potentially leading to 1.6% lower world GDP growth by the end of 2023. The drag to GDP growth would be broad-based across all major regions, driven by government restrictions, worse supply chain bottlenecks, faster inflation and lower demand.

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