- Advanced economies to drive robust but uneven global GDP growth while emerging markets lag
- Global trade volumes to grow by +5.4% this year, followed by +4.0% in 2023
- UK GDP to grow by +4.4% in 2022 vs the +4.1% average for global and EU economies
- Fiscal consolidation and monetary policy normalisation will cool UK GDP growth to +2.6% in 2023
LONDON – 18 JANUARY, 2022 – Global trade will expand above the long-term average this year but will be disrupted by labour and supply chain bottlenecks, amplified by omicron in the first half of the year. Against this backdrop, the UK’s economic growth will outstrip the global, the US’ and the EU’s average growth in 2022, despite its cocktail of Brexit-amplified headwinds, according to Euler Hermes.
In its annual economic outlook ‘Don’t Look Up ’ the world’s leading trade credit insurer forecasts UK GDP will grow by 4.4% in 2022 and by a further 2.6% in 2023. This is despite a unique combination of higher energy prices, corporate and personal tax increases, supply chain strains exacerbated by Brexit and a heavier initial blow from Covid-19 in 2020. It expects the EU’s economy to grow by 4.1% and 2.3% in 2022 and 2023, while it forecasts the US will record 3.9% and 2.8% in the same period.
Euler Hermes expects UK GDP to have rebounded by +7.1% in 2021, as businesses built up a cash buffer of £138bn and kick-started delayed decisions on investment, which it expects to improve by +5.8%.
Ana Boata, Global Head of Macroeconomic and Sector Research at Euler Hermes, said: “UK firms will have high hopes for trade in 2022, spurred by the lifting of current Covid restrictions. However, a cocktail of headwinds including Brexit are likely to encumber the recovery, given the UK’s high dependency on imported intermediary goods for its exports.”
Brexit will continue to pose a challenge, with the UK the only member of the G7 to see exports fall last year (-2.8%). Imports from the EU in 2021 remained 19% below the 2018-19 average (against +5% above for non-EU imports) while exports to the EU stood -12% below (against -10% for non-EU). A quarter of current supply-chain disruptions were driven by Brexit.
Inflation in the UK is expected to continue to outstrip the EU in the next 12 months (+3.8% on average) with only the US economy running hotter despite an easing from 2021.
Euler Hermes forecasts that advanced economies will continue to drive more than half of global GDP growth (2.2pp in 2022 and 1.6pp in 2023) while emerging markets lag for the first time since the global financial crisis.
The insurer’s 2022 global GDP forecast remains broadly unchanged. GDP growth in China may slow to +5.2% due to ongoing disruptions in the real estate sector and the government’s focus on financial stability. China’s lowest contribution to global GDP growth since 2015 is likely to have negative spill over effects on emerging markets whose recovery will be shallower compared to past crises.
Ana Boata added: “The economic impact of the pandemic is generally weakening but there are still risks to recovery. Potential disruptions to labour markets due to sanitary restrictions could put 2-3% of the value added at risk in advanced economies.
“Tighter financial conditions or a premature withdrawal of policy support could undermine the recovery and greater divergence of fiscal and monetary policy normalisation could disrupt the recovery of international trade. Rising uncertainty about the implications of slowing external demand from China could also weigh on the outlook for emerging markets.”
Pervasive supply-demand imbalances will keep inflation high until the end of the first half of 2022 in both advanced and emerging markets, but is likely to decelerate later this year as the recovery becomes entrenched.