These 5 charts reveal the global economic outlook for 2022

Chinese Lunar New Year festivity in Shanghai.
The global economy has changed due to the pandemic and supply bottlenecks.
Image: REUTERS/Aly Song
  • Global growth is expected to decelerate markedly in 2022, from 5.5% to 4.1%, according to the World Bank.
  • This reflects the continued disruption caused by COVID-19, as well as supply bottlenecks.
  • The rebound in global activity, together with supply disruptions and higher food and energy prices, have pushed up headline inflation across many countries.

After rebounding to an estimated 5.5% in 2021, global growth is expected to decelerate markedly in 2022 - to 4.1 %, reflecting continued COVID-19 flare-ups, diminished fiscal support and lingering supply bottlenecks.

Although output and investment in advanced economies are projected to return to pre-pandemic trends next year, they will remain below in emerging market and developing economies (EMDEs), owing to lower vaccination rates, tighter fiscal and monetary policies and more persistent scarring from the pandemic.

Various downside risks cloud the outlook, including simultaneous Omicron-driven economic disruptions, further supply bottlenecks, a de-anchoring of inflation expectations, financial stress, climate-related disasters and a weakening of long-term growth drivers. Because EMDEs have limited policy space to provide additional support if needed, these downside risks heighten the possibility of a hard landing.

This underscores the importance of strengthening global cooperation to foster rapid and equitable vaccine distribution, calibrate health and economic policies, enhance debt sustainability in the poorest countries and tackle the mounting costs of climate change.

1. Global growth is projected to decelerate in 2022 and 2023

Contributions of major economies to global growth.
Comparing growth contributions of major economies.
Image: World Bank

Global growth is set to slow sharply, as the initial rebound in consumption and investment fades and macroeconomic support is withdrawn. Much of the global slowdown over the forecast horizon is accounted for by major economies, which will also weigh on demand in emerging market and developing economies (EMDEs).

2. EMDEs are projected to experience a weaker recovery than advanced economies

Deviation of output from pre-pandemic trends.
Deviation between the latest projections and pre-pandemic trends.
Image: World Bank

In contrast to advanced economies, most EMDEs are expected to suffer substantial scarring to output from the pandemic, with growth trajectories not strong enough to return investment or output to pre-pandemic trends over the forecast horizon of 2022-23.

3. After surprising to the upside in 2021, global inflation is expected to remain elevated this year

Consensus median inflation forecasts.
Median global inflation is forecast to remain elevated in 2022.
Image: Consensus Economics; World Bank

Who are the collaborating partners in this SGB Financing Initiative?

The COVID Response Alliance for Social Entrepreneurs is a coalition of 86 global leaders who jointly serve close to 100,000 social entrepreneurs and touch the lives of an estimated 1billion people. Initated out of the World Economic Forum’s Schwab Foundation, its mission is to join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality. In January of 2021, its members launched its 2021 Roadmap through which its members collaborate in 10 areas of work – including capital mobilization under whose umbrella this initiative is being undertaken. Read more about the Alliance here.

The Sustainable Development Investment Partnership (SDIP) is a global platform of public, private, and philanthropic institutions with the ambition to scale and accelerate sustainable investments in developing countries and emerging markets, by creating the conditions for capital to flow where in support of the Sustainable Development Goals (SDGs). SDIP network encompasses multilateral banks, development finance institutions, financiers, private investors, asset owners, asset managers and foundations. As a joint initiative of the World Economic Forum and the Organisation for Economic Co-operation and Development (OECD), SDIP’s mission is to address the systemic challenges to finance the SDGs by creating the conditions for capital to flow where it is needed most. Read more about SDIP here.

The Collaborative for Frontier Finance (CFF), has as its mission to build a better financial ecosystem for SGBs and increase the access to appropriate capital for these businesses, works with diverse stakeholders – including local capital providers, institutional investors, development agencies, philanthropic funders, and field builder organizations – to accelerate financing solutions that target SGBs. With a bias to action, CFF works in three ways: by building and empowering networks of these stakeholders, performing “actionable research” and undertaking market-based initiatives to address systemic barriers. Read more about CFF here.

The Global Steering Group for Impact Investment (GSG) is an independent organization promoting sustainable development and advancing education in impact investment. The GSG was established in 2015 as the successor to, and incorporating the work of, the Social Impact Investment Taskforce established under the UK’s presidency of the G8. The GSG’s currently has 33 countries as its members through its National Advisory Boards (NABs), which are local platforms representing all stakeholders needed to redirect significant capital flows towards positive social and environmental impact. The GSG brings together leaders from finance, business, philanthropy, and governments to drive a shift towards impact investment and more equitable economies for all. Read more about the GSG here.

The rebound in global activity, together with supply disruptions and higher food and energy prices, have pushed up headline inflation across many countries. More than half of inflation-targeting EMDEs experienced above-target inflation in 2021, prompting central banks to increase policy rates. Consensus forecasts anticipate median global inflation to remain elevated in 2022.

4. Severe economic disruptions driven by the rapid and simultaneous spreading of the Omicron variant are a key downside risk to near-term growth

Possible Omicron-driven growth outcomes for 2022.
Possible Omicron-driven growth outcomes for 2022.
Image: Oxford Economics; World Bank

The slowdown in global growth from 2021 to 2022 could be sharper if the fast spread of Omicron overwhelms health systems and prompts a re-imposition of strict pandemic control measures in major economies. Omicron-driven economic disruptions could reduce global growth further this year - anywhere from 0.2 to 0.7 percentage point, depending on underlying assumptions. The associated dislocations could also aggravate supply bottlenecks and exacerbate inflationary pressures.

5. Global cooperation and effective national policies will be needed to address the severe costs associated with weather and climate disasters

Economic losses from weather and climate disasters.
Economic losses from weather and climate disasters.
Image: EM-DAT, CRED/UCLouvain, World Bank

Severe natural disasters and climate-related events could also derail the recovery in EMDEs. Global cooperation is needed to accelerate progress toward meeting the goals of the Paris Agreement on Climate Change, and to reduce the economic, health and social costs of climate change, many of which are born disproportionately by vulnerable populations.

The international community can also help by scaling up climate change adaptation, increasing green investments and facilitating a green energy transition in many EMDEs. National policy actions can also be tailored to promote investments in renewable energy and infrastructure and to foster technological development. In addition, policy makers can prioritize growth-enhancing reforms that increase preparedness for future climate-related crises.

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