What You Need to Know

A steadily rebounding global economy has created intense supply-demand dislocations, along with new inflation concerns, across advanced markets. We believe inflation will prove transitory, but it could cloud the monetary supply outlook if it’s persistent—with broad implications for financial markets.

Key Forecast Trends

  • The recovery continues to gather pace. We’ve raised our growth forecasts and expect the global economy to grow by 6.1% this year and 4.3% in 2022. Both forecasts are well above the precrisis trend of around 3.0%.
  • It’s important to maintain a sense of perspective. While global output is now back to pre-pandemic levels, it’s still 3% lower than it would have been without the hit from COVID-19. This gap should narrow over the coming year, but we doubt that growth will be strong enough to close it altogether.
  • We’ve made significant upward revisions to our 2021 inflation forecasts to reflect the intensity of demand distortions and supply dislocations associated with COVID-19. We expect advanced-economy inflation to reach 2.4% this year (previously 1.7%), before settling back to 1.9% in 2022 as transitory factors start to fade.
  • This has become a finely judged call. Should demand growth be stronger, pandemic scarring deeper or supply-chain pressure more persistent than we expect, inflation could easily surprise to the upside. Wage- and price-setting behavior will be key.
  • Persistently high inflation would muddy the monetary-policy outlook and cast a long shadow over financial markets. As things stand, though, monetary stimulus is likely to be rolled back only very slowly in coming years.
  • That doesn’t mean a uniform monetary approach. Many central banks, including the Fed, will look to gradually return monetary policy to a more “normal” setting once the crisis fades. Others, like the ECB and BoJ, are in it for the long haul.

Forecast Overview

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