COVID-19 continues to weigh on global economy

The strong rebound in GDP in most parts of the world in 2021 may be more of a rebound than a trend. Purchasing power, bolstered in many cases by government intervention, was solid in 2021. Despite strong demand for goods, supply chain problems have left factory shelves depleted and inflation soaring. In the US, price increases reached 4.6%, the highest among developed markets, and are expected to remain relatively high at around 4% in 2022. Inflation in the Eurozone reached 2.5% and is expected to remain close to this level, at 2.3%, in 2022. This could dampen demand in 2022 and 2023, leading to a slowdown in growth rates and an increase in insolvencies. 

With new, more contagious variants of COVID-19 driving infection rates to record highs, the impact of the pandemic has prompted further containment measures resulting in lower traffic levels, closed shops and hospitality businesses, less travel, still understaffed offices and less crowded downtown areas. Despite this, demand for consumer durables in particular has been good. However, getting these products to market has been a challenge. The pandemic has triggered a series of supply chain bottlenecks that have delayed the shipment of raw materials and finished products, depleted stock levels and increased transportation costs. All these factors, which have led to a particularly sharp spike in fuel prices due to OPEC production limits and gas shortages, mean that GDP growth is expected to be lower in 2022 and 2023 despite rising demand.

Although the pick-up in inflation is eroding purchasing power, we expect global GDP growth to slow but remain positive. Despite rising inflation, consumer savings have accumulated and should, to some extent, offset inflation. Supply chain disruptions should ease in the second half of 2022 and in 2023. This, together with monetary policy mainly in advanced markets, should create some easing of inflation. 

John Lorié, chief economist at Atradius, commented: "Our current view of the situation is that current levels of inflation are temporary and will not persist. Inflationary pressures will largely fade over the next two years as the current phase reflects an abnormal situation. Wage pressures remain relatively low and inflation expectations remain well anchored. We see high inflation gradually forcing central banks to initiate monetary tightening, but more so in the US than in the eurozone".