Moody’s Analytics, a subsidiary of Moody’s Corporation, has lowered its Global Gross Domestic Product (GDP) forecast for 2021 to 5.5 percent as the Omicron variant’s arrival increases uncertainty about the near-term trajectory.
According the research arm, access to vaccine and divergence in the recovery will persist into 2022 with growth forecast to decline marginally to 4.1 percent.
“GDP growth will steadily decelerate over the next year as policy support fades, pent-up demand cools, and supply-chain stress lingers. Most of the globe is in an improved position compared with mid-2021, with most economies in recovery or expansion mode. But divergence of performance will proceed through 2022, influenced by vaccination coverage, effectiveness managing outbreaks and policy support”.Moody’s Analytics
In August, Moody’s Analytics forecast global GDP to rebound at 5.7 percent this year following a 3.6 percent contraction in 2020.
Decline in business sentiments
In its latest forecast, Moody’s Analytics said the Omicron variant has driven business sentiment lower with supply-chain disruptions eating into inventories and hurting capacity to meet increased demand.
“While the economic recovery has yielded improved sales and employment intentions, caution has increased. Expectations into next year are mixed as uncertainty remains high”.Moody’s Analytics
The research arm of Moody’s Corporation highlighted in the statement released on December 14, 2021 that monetary policy normalization would be an important fixture of the economic landscape in 2022.
“The Federal Reserve is leading the charge with more aggressive asset tapering on the back of inflation being less transitory than initially thought. The first hike in the federal funds rate is expected by September 2022”.Moody’s Analytics
According to Moody’s, the United States (US) and China will continue to drive global economic growth. The US GDP growth is forecast at 5.6 percent in 2021 and 4.4 percent in 2022, fueled by fiscal stimulus while China’s growth is forecast at 7.9 percent in 2021 and 4.7 percent in 2022.
“China’s economy faces challenges on a number of fronts, including power shortages, a cooling property market, and a buildup of risks in the financial sector”.Moody’s Analytics
Uneven recovery in Asia
On Asia, Moody’s said economic recoveries are largely back on track and vaccination coverage has increased substantially across most of the region, but there are exceptions. The statement indicated that “Indonesia and the Philippines stand out due to their low vaccine coverage, increasing vulnerability to another infection wave that necessitates the reintroduction of movement controls”.
On the global supply chains, Moody’s said they are currently under stress but thanks to production disruption from COVID-19 as well as a surge in goods demand, there has been a lift in transport costs, shipping times and commodity prices.
Global supply chains are lean when it comes to inventory build-up and carry strong interdependencies, so one issue along the chain can have broader ripple effects, it cautioned.
The recent forecast by Moody’s Analytics is in line with the projections of other major international organizations such as the World Bank and the International Monetary Fund (IMF). In its World Economic Outlook in October 2021, the IMF forecast the global economy to expand by 5.9 percent in 2021 and 4.9 percent in 2022, 0.1 percentage points lower for 2021 than the previous forecast in July. The World Bank Group also projected 5.6 percent expansion in the global economy in 2021.