Global Economics Intelligence executive summary, May 2022

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The US Federal Reserve raised its policy interest rate by one-half point, taking a further step in what Fed chair Jerome Powell signaled would be an aggressive campaign to reduce inflation toward a 2% target. Central banks in India and Brazil have also raised rates, and the European Central Bank announced a forthcoming end to negative rates. Consumer price inflation, driven by high energy and food prices, is 8.3% in the United States and a record 8.1% in the eurozone (Exhibit 1). In many economies, the housing market has also been a factor; in the United States especially, housing prices soared during the pandemic years, pushed up by low interest rates and available stimulus spending.

Consumer inflation rose in the United States and the eurozone as energy prices surged; producer price inflation continues to outpace consumer inflation.

The main inflation driver, energy prices, increased in Europe by 38% in April and 45% in March; minus energy price rises, eurozone inflation was 3.8% in April. At a meeting in Germany, energy ministers of the G-7 group of nations urged OPEC and all oil and gas producing countries to respond to supply shortages. The ministers also affirmed the urgency of the transition to renewables, setting a goal of “predominantly decarbonized electricity sectors by 2035.”

The shifting stance of central banks seemed to give investors renewed confidence; beleaguered equity markets revived a little in the second half of May. But high inflation is wearing on consumer demand. OECD indicators reveal deteriorating consumer confidence globally and in individual surveyed economies. The latest data reveal that retail sales widely decelerated, except in the United States; in China, consumers spent considerably less amid strict zero-COVID-19 measures.

Industrial activity continues to expand, though at a slower overall pace, as reflected in the global purchasing managers’ indexes (PMIs) for manufacturing and services. In individual surveyed economies, the manufacturing PMIs eased but remain strong in the United States (57.5 in May, 59.2 in April), the eurozone (54.4 in May, 55.5 in April), and India (54.7 in April), while in the services sector, stronger expansion was measured in the eurozone, Brazil, and India.

The weight of the pandemic restrictions was the principal cause behind April’s –2.9% contraction in industrial activity in China (year over year). Declining real-estate values are also a factor. China’s original GDP growth target of 5.5% for 2022 was once viewed as readily achievable; it is now seen as ambitious or possibly beyond reach. In late May, Premier Li Keqiang, speaking to government officials, indicated that the short-term goal is to prevent the economy from contracting in the second quarter of the year. Early estimates for economic performance in May suggest improvement or at least slowing contraction.

World trade slowed overall in March and April, as indicated in the latest available data. The CPB World Trade Monitor dipped –0.2%, with declines in imports by Russia and China. In country-level data, trade momentum went into reverse in China; elsewhere, values expanded as commodity prices remain high. The Container Throughput Index retreated to 122.8 in April (flash forecast) from 123.3 in March (revised).

Unemployment rates were little changed in the United States (3.6%), the eurozone (6.8%), and elsewhere; in China the rate is climbing.

For surveyed emerging economies, consumer inflation intensified, while producer price inflation eased a little (Exhibit 2). Food prices are very high, though the FAO Food Price Index reported some relief in April as the price of food oils decreased. The steep cost of food is drawing attention to a worldwide problem of food insecurity. The United Nations has warned that Africa faces potentially deadly food shortages due to supply disruptions. In India, the government announced controls on food exports in certain situations to support national food security amid the effects of extreme weather. India has also come to the aid of Sri Lanka (population of 22 million), where a severe food and fuel crisis has been exacerbated by the high cost of fertilizer.

The inflation story is much the same in emerging economies, with some easing observed in producer price inflation.

The prices of energy commodities continued to rise through April and May. Petroleum prices (Brent) reached $120 per barrel in May (Exhibit 3). Among industrial commodities, the price of industrial metals declined in May, partly as a result of lower demand from China.

The price of energy commodities remains high; petroleum prices reached $120 per barrel in May.

As measured in yield spreads for US Treasuries, inflation expectations, while still elevated, eased for both the short- and longer-term outlooks. Inflation expectations, as estimated in the consumer survey conducted by the New York Federal Reserve in April, moved down from 6.6% to 6.3% on the one-year horizon, and to 3.9% in the longer term. The cost of capital for governments is on the rise in surveyed economies, driven by high inflation and increasing interest rates; German bond yields turned positive in early March and have inched up ever since. Policy interest rates were raised by the Reserve Bank of India (to 4.4%), the Central Bank of Brazil (to 12.75%), and the US Federal Reserve (to 0.75–1.0%) (Exhibit 4).

Brazil’s and India’s central banks raised policy rates in May, as did the US Federal Reserve while indicating that further rises will come quickly.

In this environment, crowded as it is with overlapping crises and disruptions, the World Economic Forum (WEF) held the first in-person Davos Agenda since the COVID-19 pandemic began. Central topics included Russia’s invasion of Ukraine, the economy, the future of globalization, food security, the energy transition, climate change, healthcare, equality, and education. WEF president Børge Brende and McKinsey global managing partner Bob Sternfels presented a white paper, Resilience for sustainable, inclusive growth, advancing approaches that emphasize the interconnectedness of economic, societal, and business themes. The two leaders discussed the why and the how of building a “resilience muscle”—the capabilities our societies need to steer and thrive under conditions of continuous disruption and uncertainty. They announced a “Resilience Consortium,” in which governments, companies, and public-sector organizations can accelerate collective action and enable more systemic investment in the drivers and capabilities of global resilience.

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 May 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 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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