World Economic Prospects Monthly

Abstract

Overview: Higher inflation adds to growth pressures ▀ This month we have raised our global CPI inflation forecast sharply — we now expect inflation to average 5.2% in 2022, 0.7pp higher than a month ago and well above last year's 4.3%. The squeeze on households' real incomes from this and faster than previously expected monetary policy tightening has led us to lower our 2022 global GDP growth forecast by 0.2pp to 4.0%. ▀ The key driver of the upward revision to CPI inflation has been a shift in our oil price forecast. In addition to raising our near‐term forecast in response to the rise in the spot price, we now expect a more gradual fall back in the Brent oil price to $80pb by end 2022, about $13pb higher than we envisaged a month ago. ▀ Higher energy inflation and upward revisions to non‐energy inflation in some advanced economies mean that we now expect CPI inflation to fall more slowly and from a higher starting point than a month ago. ▀ This is likely to prompt a faster pace of monetary policy tightening in many economies. In the US, we now expect four 25bp rate hikes this year and we also pencil in more hikes by central banks in the UK, Canada and Australia as well as a number of EMs. Higher inflation and borrowing costs will squeeze households' spending power and are key to this year's GDP growth downgrades. ▀ On a brighter note, the recent fall in global Covid cases is good news and it supports our existing view that there will be a relatively quick rebound in activity after a weak start to 2022. At a global level, recent Covid developments are not grounds for any upgrade to the activity outlook. ▀ At 4.0%, world GDP growth in 2022 would be much weaker than we anticipated a few months ago, but it is still robust by post‐global financial crisis standards. In 2023, world growth is expected to slow further to a still‐solid 3.6%.