After an initial recovery in 2021, developments during 2022 darkened the global outlook as risks began to materialise. Global output contracted in the second quarter as activity declined in China and Russia, while US consumer spending fell below expectations.

An economy already weakened by the pandemic faced further shocks: unexpectedly high inflation, particularly in the United States and major European economies; tighter financial conditions; a sharper-than-expected slowdown in China following COVID-19 outbreaks and lockdowns; and consequences of the war in Ukraine.

The baseline forecasts projected growth slowing from 6.1% to 3.2% in 2022, 0.4 percentage points below the April 2022 World Economic Outlook. The US forecast was reduced by 1.4 percentage points following weaker growth, reduced purchasing power and tighter monetary policy.

Renewed lockdowns and a deeper property-sector crisis lowered China’s forecast by 1.1 percentage points, with substantial global effects. In Europe, downward revisions reflected the war and tighter monetary policy.

Global inflation projections increased because of food and energy prices and persistent supply-demand imbalances. The article cited expectations of 6.6% inflation in advanced economies and 9.5% in emerging and developing economies, increases of 0.9 and 0.8 percentage points respectively. For 2023, anti-inflation policy was expected to slow global output growth to 2.9%.

Risks were strongly tilted towards adverse outcomes. War could abruptly interrupt European gas imports from Russia. Inflation might prove harder to reduce if labour markets tightened further or expectations became unanchored. Tighter global financial conditions could push debt to critical levels in emerging and developing economies.

Further outbreaks, lockdowns and a worsening property crisis could constrain Chinese growth, while geopolitical divergence could obstruct international trade and cooperation. An alternative scenario in which these risks materialised placed growth at roughly 2.6% in 2022 and 2% in 2023, among the weakest outcomes recorded since 1970.

With pressure on living costs, inflation control should be a central policy priority. Monetary tightening entails real economic costs, but delay would increase them. Targeted fiscal support can help vulnerable groups, although depleted public finances and the need for an anti-inflation stance require offsetting revenue or spending measures.

Tighter conditions also affect financial stability, calling for careful use of macroprudential tools and improved debt-resolution frameworks. Responses to food and energy price pressures should focus on those most affected. Continued vaccination can help protect against future variants.

Finally, climate change still requires immediate action to reduce emissions and environmental damage and encourage investment that supports a transition towards a greener economy.