2022 Global Outlook: Slowing But Not Slow

A high tide of growth, aided by a sea change in fiscal policy, is likely to help float the global economy safely over the rocks of risks in 2022, despite waves of worries emanating from COVID, inflation, shortages, and rate hikes.

Global GDP has surpassed its pre-pandemic level in 2021 and completed the transition from recovery to expansion, aided by strong policy support, the deployment of effective vaccines and the resumption of economic activities. In 2022, global GDP is anticipated to grow around 5%, forming the strongest back-to-back years for the world economy since the early 1970s.

The likelihood of additional fiscal support in Europe, Japan, and the United States combined with the spending of pent-up savings by consumers and businesses supports global growth prospects. China’s policies in 2022 may offer targeted support for favored industries, allowing economic growth to slow only modestly. Although monetary policy may begin to tighten, the slow pace of withdrawal from pandemic-era policies may limit any negative impact on stock valuations. Inflation pressures are likely to ease over the course of the year; some of 2021’s shortages may turn into gluts by the second half of 2022.

Historically, when global growth is above average, international stocks perform well, even when that growth rate is slowing, due to a high weighting in economically sensitive sectors.

Above average global growth

The pace of the global economic rebound may have peaked in 2021. Emergence from COVID lockdowns saw peak annualized growth rates for the U.S (6.7%) and U.K. (23.6%) in the second quarter, and the Eurozone (9.3%) in the third. Japan’s growth rate is anticipated by economists to rise to its fastest pace of the year at 4.1% in the final quarter of 2021.