Global Economics Intelligence executive summary, April 2022

Amidst high inflation and the continuing war in Ukraine, strong demand persists; forecasting institutions trim growth estimates.

Inflation accelerated in the United States and Eurozone to 8.5% and 7.5%, respectively, with high energy prices as the principal driver (Exhibit 1). The US economy contracted –0.4% in the first quarter of 2022; economists are citing steep increases in US imports as a cause of the retreat. Developed and emerging economies alike are experiencing continuing supply chain disruptions and productions shortages, challenges magnified by the effects of Russia’s invasion of Ukraine.

High energy prices are fueling inflation, which accelerated in the US and eurozone to 8.5% and 7.5%, respectively, in March.
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Recent monthly data suggest, however, that global economic fundamentals are sound and overall demand remains strong. Output is limited by shortages in labor and supplies. Central banks are now attempting to walk a fine line between controlling inflation and squelching economic growth. Yet interest rate rises cannot be expected to reduce inflation decisively, since it is largely driven by high energy prices. Given these difficult dynamics, the OECD composite leading indicators point to a slowdown in most economies. The directional indicators are consonant with results from the most recent McKinsey survey of economic conditions, taken in March. In view of the invasion of Ukraine, respondents identified geopolitical conflict as a top risk to global growth. Overall sentiment about the economy remains mainly positive but has moderated.

Global trade and supply chains were affected soon after China imposed restrictions in Shanghai to stop the spread of COVID-19. The measures are now being lifted, but China is still recording between 1,000 and 3,500 new cases daily. These figures are low by global standards, but the government is sticking to a zero-COVID-19 policy, and health authorities have ordered mass testing in Beijing. The approach to the pandemic adds to the challenges facing the Chinese economy as the government attempts to meet its GDP growth goal of 5.5% (Q1 growth was 4.8%).

Most forecasters have trimmed previous growth estimates of GDP growth. The International Monetary Fund (IMF), for example, in its April 2022 edition of the World Economic Outlook survey, highlighted the limiting factor of Russia’s invasion of Ukraine. The IMF now foresees 3.6% global growth in 2022 and 2023, respectively, 0.8 and 0.2 percentage points slower than the estimates in January’s report. The report likewise reduced 2022 growth estimates for the United States to 3.7% (from 4.0%), the eurozone to 2.8% (from 3.9%) and China to 4.4% (from 4.8%). In the first quarter of 2022, the US economy contracted –0.4% after expanding 1.7% in the previous quarter.

In March, consumer confidence continued to decline as inflation pressure intensified. The OECD global consumer confidence index fell to 97.7 in March (98.4 in February). Retail sales have been sluggish. A resurgence of consumption in February in China was halted by the renewed pandemic restrictions; eurozone and US sales values continue to rise under inflationary conditions (Exhibit 2).

A resurgence in retail sales in China halted due to renewed pandemic restrictions; retail sales in the US and eurozone continue to rise slowly.
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Global purchasing managers’ indexes (PMIs) for manufacturing and services continue to show expansion, but the pace is decelerating. Individual manufacturing PMIs are retreating, except in the United States (59.7 in April) and Brazil; demand remains strong in the eurozone, but input shortages are the limiting factor (Exhibit 3).

Global purchasing managers’ index for manufacturing are retreating, except in the US and Brazil; demand remains strong in eurozone amid input shortages.
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Services PMIs have been negatively affected by renewed lockdowns in China, inflation-induced consumer reticence in the United States, and, in Russia, the exit of foreign companies. In Europe and Brazil, the services PMI rose with the lifting of pandemic restrictions.

In February, world trade volumes set another historic high, rising 0.3% over January’s level, according to the CPB World Trade Monitor. Notably, however, the Container Throughput Index dropped to 117.1 from 120.7 in January. This decline was caused by the combined effects of Chinese New Year and the pandemic restrictions in China.

Unemployment rates have descended in the United States (3.6%) and the eurozone (6.8%) while rising in India (8.1%) and China (5.8%).

Consumer inflation is intensifying in most surveyed economies, while producer price inflation, which has been very high, stabilized or decelerated. Commodity prices remain at elevated levels in most categories, including energy, industrial metals, livestock, and agriculture. The FAO Food Price Index has risen to its highest-ever level, with a 13% jump in March. The UN is warning of a looming food crisis, especially for certain poorer nations, given the magnifying effect of Russia’s war in Ukraine.

Inflation expectations in the United States are the highest in recent history (as reflected in the spread between five- and ten-year yields on Treasury bills versus inflation-protected securities) (Exhibit 4).

Inflation expectations climbed to the highest levels in recent history.
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The combination of heightened geopolitical uncertainty and high inflation caused stock markets to slide in March; the situation stabilized in early April and then deteriorated once again. In US markets, tech stocks were hard hit: the NASDAQ index lost more than 13% of its value in April, its worst month since 2008.

The US dollar continued to strengthen against the euro; the real strengthened, and the ruble recovered nearly to preinvasion values. Despite the inflationary environment, however, gold prices have been mostly stable. The volatility indexes remain elevated in all markets, including equities and oil. The Brent crude oil price was $105 on April 27.

As reflected in climbing bond yields, the cost of capital for governments surged, driven mainly by high inflation expectations. In March, the US Federal Reserve raised its policy interest rate one-quarter point; in early May, it raised the rate by one-half point, to 0.75–1.0%. The Fed also signaled that further hikes will come quickly and confirmed its intention to unwind its $9 trillion balance sheet.

In China, in recognition of worsening external conditions, President Xi Jinping announced a large new infrastructure plan on April 26, which is intended to strengthen national security as well as stimulate the slowing economy. Government sources note that special emphasis will be given to technological infrastructure, including the internet, supercomputing, and AI.


McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for April 2022 here and here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available for free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.

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