The Q4 Global Economic Conditions Survey (GECS) gives a similar message to the previous survey; global growth will continue but at a modest pace. This GECS was conducted in late November/early December at the same time as the Omicron COVID variant was beginning to spread rapidly. This may have been a factor in the fall in global confidence. The global orders index, which is less volatile than the confidence measure, was little changed in the Q4 survey as were other activity indicators, such as employment and capital spending. This is consistent with steady global growth early in 2022, although the impact of Omicron points to downside risks

image of a pier

Global uncertainty is above pre-pandemic levels

The two ‘fear’ indices – measured by concern that customers and suppliers may go out of business – were little changed in the Q4 survey. Both indices have fallen back from extreme levels seen in 2020, but are still above pre-pandemic levels. These measures reflect only the early stages of the effect of the Omicron variant so they may understate the perceived level of economic risk early in 2022.

Orders still strongest in advanced economies

For orders – the proxy for real economic activity – there was little change in the Q4 survey both globally and regionally. Thus, the distinctive regional pattern that emerged last year is maintained with growth prospects generally better in advanced economies than in EMs. North America and Western Europe record the highest orders balances, ahead of the Middle East and Africa.

Looking through Omicron – a more normal economy?

For now, the highly transmissible Omicron variant is clouding near-term economic prospects. Looking beyond this, there is the prospect of approaching a more normal global economy over the course of 2022. Among advanced economies this would mean sustained consumer demand supported by spending of accumulated savings and rising employment as COVID fiscal support measures are withdrawn. In addition, easing of supply bottlenecks is likely, as supply and demand adjust to post-pandemic conditions. In turn, this may help bring inflation down from current elevated levels towards the 2% target adopted by most central banks. But even in this scenario the year ahead will see some tightening of monetary policy in most cases, including by the U.S. Federal Reserve. Meanwhile, for many emerging markets progress with vaccinations and a waning of the health crisis offer the prospect of a more substantial and significant recovery than has so far been achieved.

The biggest economic risk is that inflation stays higher for longer, partly because of prolonged supply shortages but also because demand remains buoyant too. Upside surprises to inflation would trigger a greater degree of monetary tightening than is currently discounted by financial markets. The effect would be to slow global economic growth, preventing a return to its pre-pandemic trend.