Global economy to grow by about 4% in 2022, says thinktank

The year ahead will be dominated by efforts to fight inflation along with climate change, while global economic growth will be reasonably strong and stock markets weak, according to an economic forecaster.

The world starts the year with economies held back by a supply chain crisis and the rapid spread of the Omicron coronavirus variant, but the global economy is still expected to grow by about 4% in 2022, compared with an estimated 5.1% in 2021, according to the Centre for Economics and Business Research (CEBR), a UK thinktank.

Douglas McWilliams, the founder and executive deputy chairman of the CEBR, said the group had been forecasting 6.7% growth for the UK in 2021 but reduced it to 6.6% after a weak December. “We estimate £3bn or so of lost GDP from people staying at home and not spending, plus the impact of the restrictions in Wales and Scotland.” Similarly, the 2021 forecast for global growth was cut by 0.1 percentage points to 5.1%.

The new year will start slowly for the UK, but as supply issues get resolved and with unspent savings burning holes in people’s pockets, GDP is forecast to grow by at least 4% in 2022.

The biggest issue facing policymakers around the world, especially in the US and the UK, is likely to be inflation, the thinktank said. The Bank of England unexpectedly lifted interest rates in December after a rise in inflation to a decade high of 5.1% and signalled that more rate rises will follow in 2022 as soaring energy costs are expected to push inflation to 6% in the spring.

The US Federal Reserve has pencilled in three rate hikes next year and accelerated the rate at which it cuts spending on government bonds in the face of what one official called “alarmingly high inflation”. The CEBR said inflation could jump beyond 6% in the UK and to more than 7% in the US, where it reached a 39-year high of 6.8% in November.

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While wages will also rise amid a tight labour market with declining unemployment and growing numbers of vacancies, soaring inflation will lead to a cost-of-living squeeze in the UK. The Resolution Foundation thinktank has warned that UK households are facing a “cost-of-living catastrophe” because of stalling wages, and rising tax and energy bills.

In the face of higher interest rates and the rolling back of quantitative easing, global bond, equity and property markets are expected to fall around the world, with declines ranging from 10% to 25%, and some of the impact to last into 2023, the CEBR forecast.

While 2021 was the year when environmental concerns went mainstream and the business sector took a more aggressive stance than governments, 2022 will be one “where policy has changed [and] pledges have been made but the technology is still in its early stages”, the CEBR said.

Read More: Global economy to grow by about 4% in 2022, says thinktank

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