Headwinds pose downside risks and lead to lower global growth – The Peninsula

Headwinds pose downside risks and lead to lower global growth – The Peninsula

The dominant global macro theme for the last year and a half has been the economic recovery from the depths of the COVID-19 pandemic shock. In fact, with a GDP growth of 5.9 percent in 2021, the global economy witnessed the fastest expansion in activity in almost 50 years. The Global Manufacturing Purchasing Managers Index (PMI), which is a coincident indicator for global economic activity, has been in expansion territory for 21 consecutive months, and it remains strong as per the latest print of March 2022, demonstrating the resiliency of the global economic recovery.

However, despite the strength of the global recovery, new macro drivers are emerging, placing downside risks to the economic outlook. In this piece, QNB highlights two major macro drivers that are expected to weigh on the global economy over the next several quarters.

First, global inflation accelerated rapidly to multi-decade highs, threatening the prospects for price stability. This is the result of COVID-19 related supply chain constraints, strong stimulus-driven demand, low labour participation rates and ultra-tight commodity markets.

During the pandemic, as the consumption for services was limited by lockdowns and social distancing measures, direct fiscal transfers to households created a demand boom for manufacturing products. The secondary effect