Global Economy: Uneven growth to continue in 2022

The global economy continued its post-pandemic recovery in 2021, with the continued rollout of vaccines and accommodative monetary and fiscal policies. However, most developed countries hit a soft patch from Q3-2021 due to a number of factors. To begin with, the arrival of more transmissible coronavirus strains (most notably Delta and Omicron) pressured consumer spending. Furthermore, as the economic rebound strengthened, government intervention and other stimulus packages decreased. Rising inflationary pressures also caused significant constraints across countries. For instance, US Consumer prices rose by 7.0% in Dec-2021, the highest estimate in three decades, with the US Federal Reserve acknowledging the persistent inflationary pressures and commencing asset purchase tapering before the end of the year. The post-pandemic acceleration in inflation appears to be distinct from previous inflation episodes, as it stems from pandemic-led supply chain disruptions. This will largely determine policy direction across global economies in 2022, which will likely be a year of policy normalisation.

The divergence in global growth is another key theme from 2021. In our mid-year economic outlook report, “Walking a Slippery Slope”, we highlighted that economic growth across countries would be uneven due to the differing wealth of nations. The forecast that more affluent countries would recover stronger from the pandemic never appeared more accurate, thanks to a confluence of factors, including varying levels of vaccine access and accommodative fiscal and monetary policies. While our outlook for developed economies remains strong, we expect output in emerging markets to be more divergent, as inflationary pressures coupled with other fiscal imbalances and potential monetary and fiscal responses to central banks in advanced economies make for a tricky balancing act in 2022. Overall, the IMF expects sustained expansion for EMs in 2022, projecting modest output growth in Brazil (+1.5%), South Africa (+2.2%) and Russia (+2.9%).

Despite the challenges faced in 2021, we expect reduced restrictions, high vaccination rates, improved household incomes and robust foreign demand to sustain growth in 2022. Unsurprisingly, the International Monetary Fund (IMF) projects global GDP to expand by 5.9% in 2021 and expects further expansion of 4.9% in 2022. The Washington-based body forecasts growth across all regions, albeit to varying degrees. Advanced Economies are expected to grow by 5.2% in 2021 and 4.5% in 2022. Also, IMF forecasts the Euro Area to expand by 5.0% in 2021 and 4.3% in 2022. The SSA region’s recovery is expected to lag behind other regions, growing by 3.7% and 3.8% in 2021 and 2022, respectively.


Sub-Saharan Africa: A patchy road

Sub-Saharan Africa (SSA) has broadly regained ground after contracting in unprecedented fashion in 2020. The IMF estimates real GDP growth at 3.7% y/y in 2021. During the year, the easing of movement and travel restrictions around the globe supported tourism recovery in SSA and drove demand for critical exports. The region's growth pillars recovered from 2020’s slump, with the Bloomberg commodities index, which includes crucial SSA exports such as crude oil, natural gas, copper, and coffee, gaining 28.2% after contracting by 3.5% in 2020. Improvements in global trade and favourable financial circumstances also supported economic recovery for African countries.

In terms of the pandemic, there is a lot to be desired. As expected, the vaccine rollout in SSA has been the slowest globally, leaving the region vulnerable to repeated waves of Covid-19. Only c.9.2% of the African population were fully vaccinated as of 31-Dec-2021, well below the c.48.5% global figure. Although the world administered around 9 billion doses in 2021, it will likely take years before the majority get vaccinated in Sub-Saharan Africa. Additionally, the discovery of the Omicron variant in South Africa, and the reaction of developed countries in banning travel from Southern Africa, highlight the perennial threat of the pandemic - prolonged foreign travel restrictions still pose downside risks to investment and business continuity.

The IMF expects regional growth at 3.8% in 2022. However, the recovery remains modest by global standards, expanding the income disparity with developed economies. For context, the fund expects growth in Advanced Economies and Emerging Economies to print at 4.5% and 5.1%, respectively. Given SSA’s diversified economic structures, we believe modest regional growth will be maintained as robust expansion in high-performing nations, including Ghana, Ivory Coast, Kenya, Senegal and Rwanda, offsets tepid performance in others. However, sluggish oil production in Nigeria and socio-economic vulnerabilities in South Africa will likely weigh on growth in West Africa and Southern Africa in 2022. Furthermore, conflict in Ethiopia, Jihadist terrorism in Niger and Mali, and terror attacks in Uganda pose significant threats to the business environment, with potential spillover effects.