International outlook for 2022.

• Author: Mafi-Kreft, Elham

Introduction

While economic projections for 2022 are not as uncertain as the 2021 forecast was, no one can state with full confidence that we are at the end of the global health crisis, and therefore, the global economic crisis. On one hand, the vaccines have brought hope of restored normalcy in our activities; on the other hand, the variants have warned us of the possibility for further disruptions.

Great inequalities in access to the vaccine persist around the world. While close to 60% of the population in advanced countries have been fully vaccinated, only around 1% of the population in low-income countries have received their shots. In addition to the disparities in the distribution of vaccines, many emerging and low-income countries were never able to provide policy support to their economies or have now stopped providing it.

Therefore, while we expect the global economy to grow at a robust pace of 4.9% in 2022 (see Figure 1), we note that many low-income countries are diverging sharply from the rest of the world and will continue to struggle to regain their pre-pandemic living standards.

United States

We believe private consumption will stay strong and continue to outpace supply capacity in the first half of 2022. The labor market is expected to stay tight, and companies will continue to face difficulty retaining and recruiting new personnel. Supply chain issues, such as shortages of raw material, increasing freight prices and port congestion, are currently the biggest contributors to rising prices. Those issues should clear up later in 2022 as private spending will decline and businesses will start rebuilding their inventories. However, there are increasing risks of inflationary pressures at a pace that we have not experienced since 2008. Therefore, considering the inflationary risks, the Federal Reserve System has signaled willingness to withdraw the emergency pandemic support for the economy. We expect that the Federal Reserve will first reduce its asset purchases, and then by the end of 2022 start raising its interest rate. That said, U.S. policies should stay accommodative in 2022, and the International Monetary Fund (IMF) expects the U.S. economy to grow strongly at a rate of 5.2%.

Eurozone

One of the major threats to the Eurozone's economy is the supply-side disruption and the subsequent upward pricing pressures put on raw material. Those forces are limiting production and holding back Germany, Europe's engine of growth, by...