World Economic Prospects Monthly

Abstract

Overview: Omicron prompts a further growth downgrade ▀ It is unclear how serious the health implications of the new Omicron coronavirus variant will be, let alone how governments, households and firms will respond to it. But against this uncertain backdrop, we have lowered our baseline GDP forecasts. Global GDP growth is now expected to slow from 5.7% this year to 4.3% in 2022, down 0.2pp from a month ago. ▀ It may take a few weeks before the significance of the emergence of the Omicron variant becomes apparent. For now, we assume that there will be a modest reimposition of some activity restrictions — most notably on foreign travel — an increase in voluntary social distancing and some resulting supply‐chain disruption. This will dampen growth around the turn of the year. But the lost activity will be made up in Q2 and Q3 2022. ▀ Beyond the near term, Omicron could pose upside risks to the growth forecast if initial albeit unproven suggestions that it has milder symptoms than prior variants are true. However, if the variant has greater transmissibility or more resistance to existing vaccines, the economic disruption from Omicron would probably be greater and lengthier than assumed in our new baseline. ▀ Omicron may also delay any fall back in inflation if it exacerbates ongoing supplychain problems and slows the speed at which households re‐orientate their spending back towards services from goods. ▀ As a result of this, recent upside inflation surprises in several economies and an upward revision to our oil price forecast, we have raised our CPI forecasts. We have lifted 2022 global CPI inflation by 0.3pp to 4.2%, just a shade below this year's average. But over the next year, inflation is still expected to fall sharply from 5.4% in Q4 2021 to about 3% in Q4 2022.