Regional Cyclical Outlook for 2022: Post‑Peak Growth and Shifting Policy

Much of the global economy has transitioned quickly from an early-cycle recovery to a mid-cycle expansion that now appears to be rapidly progressing toward late-cycle dynamics. Global real GDP growth – and fiscal policy support – likely peaked in 2021. In our base case, we forecast global inflation to peak by the first quarter of 2022, driven in part by monetary policy pivoting toward normalization in most regions. Overall, as we explained in our Secular Outlook, “Age of Transformation,” we believe what lies ahead is a more volatile and uncertain growth and inflation environment with paths that vary across regions and sectors.

Here we share our 2022 outlook for growth, inflation, and policy for major economic regions. For detailed insights into economic trends in 2022, along with investment implications, please read our Cyclical Outlook, “Investing in a Fast-Moving Cycle.”

U.S.: Rebalancing and restocking

Tiffany Wilding, Allison Boxer

We believe the U.S. will undergo three transitions in 2022, producing slower but above-trend growth and slower but above-target inflation. First, policy support should give way to organic growth as fiscal stimulus and central bank policy will tend to be less supportive in 2022. Second, pandemic-related goods spending should give way to a further services recovery – notwithstanding the continuing disruption in services activity in the first quarter driven by the omicron variant of COVID-19. Third, final domestic demand growth should give way to inventory restocking. Bottlenecks constrained production in 2021, which – paired with strong goods demand – depleted inventories. In 2022, slowing final domestic demand growth coupled with easing supply constraints should support restocking. Overall, we look for real U.S. growth to slow to a 3.5%–4% (Q4/Q4) range in 2022.

Rebalancing and restocking should ultimately help inflation moderate back toward the U.S. Federal Reserve’s target in late 2022. However, we expect inflation to remain well above target until then, with core CPI (U.S. Consumer Price Index) peaking around 6% in the first quarter. Given this inflation backdrop, we look for the Fed to start hiking rates in March 2022 and to begin shrinking its balance sheet around midyear.