International credit rating agency, Fitch Ratings, has projected that the world’s growth would slow down in 2022. This was disclosed in the Fitch Global Economic Outlook – December 2021, themed: “Inflation Is Prompting Policy Normalisation”.
According to Fitch, supply-side disruption from the pandemic in the developed economies will be minimal in the medium to long run.
Stagflation entails very weak growth coinciding with high inflation and has historically been prompted by large adverse supply-side shocks.
What Fitch is saying
Throughout the pandemic, households in developed nations built up enormous saving buffers and continue to run historically big financial surpluses, with savings flow outpacing home investment.
As sovereign funding is eliminated, this enables the room to maintain consumption growth. The report said “We expect world growth to slow in 2022 as the boost from base effects and reopening naturally fades. Fiscal and monetary policy support for demand is also being wound back but the private sector looks well placed to cope with this transition.
“Households have built up large savings buffers through the course of the pandemic and continue to run historically large financial surpluses, with savings flows exceeding residential investment. This provides scope to maintain consumption growth as sovereign support is withdrawn.”
Fitch stated the feared wave of bankruptcies of small and medium-sized firms has failed to materialise and there has been no tightening of credit supply. The revised down forecast for the world GDP in 20202.
The report said “We have, however, revised down our world GDP forecast for 2022 to 4.2% from 4.4% in the September GEO. This partly reflects manufacturing bottlenecks now looking likely to last into 2022. We have now cut our US growth forecast for 2022 to 3.7% from 3.9% in September mainly for this reason. However, the main driver is the cut in our China growth forecast to 4.8% from 5.2% in September.”
Incoming data, according to Fitch, points to a more severe slowdown than expected, and policy responses to date have been modest. More policy easing is expected in the coming months, according to Fitch, as the authorities try to keep growth from falling below 5%.