Global Economics Intelligence executive summary, January 2022

Industry and trade in goods grow on strong consumer demand; the pandemic wave, inflation, and geopolitical tensions present risks to faster growth in 2022.

The global economy experienced a strong finish in 2021, with economic performance accelerating in the absence of most pandemic restrictions. Trade in goods expanded through the year, and manufacturing and services continued to grow in most surveyed economies. The International Monetary Fund (IMF) projects 5.9% global growth for 2021. The US economy had a very strong fourth quarter, with GDP expanding at a rate of 6.9% and annual GDP growth estimated at 5.7%. China’s economy expanded 8.1% in 2021; eurozone GDP growth should reach 5.2% (OECD). Estimates of GDP growth for India’s fiscal year, which extends through March of 2022, are around 9.0% (IMF).

At a press conference on January 26, Federal Reserve chair Jerome Powell said that the US economy no longer needs “sustained high levels of policy supports” and that to control inflation the Fed will soon raise policy interest rates, which are still near zero. Analysts expect several rate hikes in 2022, beginning in March. Consumer inflation in the United States reached 7.1% in December, a 40-year high (Exhibit 1).

Consumer inflation climbed in the United States (to 7.1%) and the eurozone (to 5.0%); producer-price inflation is at or near historic highs.
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In Europe, domestic price pressures are lower, and inflation is driven mainly by rising energy costs. In light of the different dynamics, the European Central Bank (ECB) was until very recently expected to leave interest rates near zero for longer. Consumer inflation reached a record 5.1% in the eurozone in January, however, and at a press conference, ECB president Christine Lagarde declined to rule out interest rate hikes in 2022. Central banks in Brazil and Russia, meanwhile, have done some heavy lifting in their battle against inflation, raising policy interest rates in a string of hikes to 9.25% and 8.5%, respectively. Signs have at last appeared in those countries that the inflationary trajectory has stalled (Russia) or reversed (Brazil) (Exhibit 2).

In December 2021, the central banks of Brazil and Russia raised interest rates; in the US, the Federal Reserve is expected to make several hikes in 2022.
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Depending on how well the measures to control inflation succeed, economic momentum from 2021 could carry over into 2022. Executive respondents to McKinsey’s December survey on economic conditions were fairly optimistic about 2022: most expect better economic conditions despite heightened risks from the pandemic and inflation. Given that economies are expected to shift away from stimulus spending and other policy supports, forecasters and economists generally project a slower pace for global growth in 2022—but one that is still faster than prepandemic levels. Estimates range from 4.5% (OECD) to 4.1% (World Bank, IMF), rates of growth not seen since 2010, the bounce-back year after the global financial crisis.

Forecasters are also aware that the recent positive economic data have yet to capture the effects of the new pandemic wave, spurred by the Omicron variant. Infection rates in this wave were originally highest in Europe and the United States (where they remain high), but the wave has spread around the world, from Latin America to Central Asia to Australia, as fewer containment measures have so far been taken.

Turning to the most recent monthly economic data, consumer confidence, both globally and in individual economies, dipped in December 2021 with the resurgence of the pandemic. Retail sales remained strong in the United States in December and even spiked in the latest eurozone data (for November), which show strong improvement from holiday buying.

Solid expansion was indicated by global purchasing managers’ indexes (PMIs) for both manufacturing (54.2) and services (54.6) in December. In several surveyed economies, especially the United States and the eurozone, the manufacturing PMIs measured very strong growth in recent months (Exhibit 3). Services PMIs continue to show robust expansion as well (except in Russia). The OECD composite leading indicators were slightly lower in December, except in Russia, where the level rose.

In several economies, the purchasing managers’ indexes for manufacturing are measuring historically high rates of expansion.
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As of November 2021, the most recent month for which data are available, trade continued to improve. The CPB World Trade Monitor rose 2.0% (1.1% in October), as both imports and exports increased in advanced economies. The Container Throughput Index rose to 125.3 (123.9 in October), another record high for this metric, as throughput increased in Chinese ports.

Unemployment rates are approaching prepandemic lows in all surveyed economies. In the United States, the rate dipped to 3.9% in December 2021 and was little changed at 4.0% in January. Eurozone unemployment fell to 7.1% in November and again to 7.0% in December—the lowest level ever recorded. Pandemic-driven labor shortages continue to act as a drag on recovery. The Federal Reserve Bank of Atlanta estimated that US sales revenue in 2021 might have been diminished by $738 billion because of labor shortages—a figure approximating 3.3% of US GDP.

In December in the emerging economies, consumer inflation remains a concern; China is the exception, where inflation dipped to 1.5% in December. Producer prices are high everywhere, but lately these have eased somewhat. Behind much of the inflation story, in Europe and elsewhere, are high energy prices: from natural gas to coal to crude oil, prices began the year on an upward trend. Crude oil recently approached $90 per barrel (Brent), the highest level since 2014.

Inflation expectations, as expressed in five- and ten-year T-bills and TIPS of the same maturity, remain elevated but are moderating. 1 The performance of equity markets was mixed in December and January, reflecting some investor caution over the global shift toward less accommodative monetary policies. Volatility indexes for equities and oil remain elevated. The cost of capital for governments continues its upward trend, except in China and Brazil (this metric can also measure rising growth expectations).

Heightening geopolitical tensions are cited by most analysts as a growth-limiting risk for 2022. The pressure points include the South China Sea, where tensions between the United States and China are highest, and the Donbas region of Ukraine, scene of a potentially dangerous dispute between Russia and the United States and its allies over the eastward expansion of NATO.


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 January 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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