Perpetual High Inflation to Slow Global Growth

A customer shops for meat at a Safeway store in San Francisco, Calif., on Oct. 4, 2021. Justin Sullivan/Getty Images

Continuous high inflation will put a damper on the world economy for the rest of 2022, according to a Jan. 28 Reuters poll of 500 economists that covered 46 economies.

The analysts interviewed said they were trimming their global growth outlook due to worries of slowing demand and the risk that interest rates will rise too quickly.

Many economists were blindsided by the surge in inflation along with the central banks and have downgraded their global growth forecasts due to the worsened outlook.

Their previous assessments from three months ago assumed that inflation, driven in part by the pandemic-related supply crisis, would be only transitory.

Omicron has been hurting near-term growth and putting persistent price pressures on consumers and businesses, but economists remain optimistic that price pressures will ease by 2023.

The global markets have been wildly fluctuating this week as central banks move their targets to try to manage inflation.

The Federal Reserve on Jan. 26 indicated that it is likely to hike interest rates in March and reaffirmed its plans to end its pandemic-era bond purchases before massively reducing its asset holdings.

The federal funds rate, which has been at a record low of 0–0.25 percent since the pandemic, will be raised to moderate inflation.

The Bank of England had already raised its interest rates on Dec. 16 and is expected to raise them again.

The Bank of Canada has said that it will maintain its policy rates for now, but that it will likely be hiking them soon.

Foreign investors are viewing communist China as a safe haven from inflation for 2022, as it sees robust foreign net inflows.

Meanwhile, central banks in smaller regional economies are depending on the Fed to act while they combat the pandemic and their own economic problems.

In contrast, it is expected that the European Central Bank and the Bank of Japan will not budge until the end of next year after they announced a more cautious change in policy.

The world economy is expected to slow to 4.3 percent in growth in 2022, after expanding 5.8 percent last year, down from the previous 4.5 percent predicted in October.

Growth is estimated to slow down further to 3.6 percent and 3.2 percent in 2023 and 2024, respectively, mainly because of higher interest rates and costs of living.

While most countries foresee a reduction in growth for the fourth quarter of 2021 and the first quarter of 2022, due to the spread of the Omicron variant, they expect it to rebound in the second quarter.

World markets dipped again Friday as investors remain concerned about future signals from the central banks and amid rising tensions between NATO and Russia, in one of the worst starts to a new year for stocks.