Shrutee Sarkar

BENGALURU (Reuters), – A persistently high level of inflation is going to haunt the global economy in the coming year. According to a Reuters poll, economists have lowered their global growth outlook due to worries about slower demand and the possibility that interest rates will rise more quickly than they had anticipated.

It is a vast change in comparison to three months ago when economists were defending central bankers’ then-prevalent belief that an inflation surge, caused in part by supply-related shortages and pandemics, was temporary.

In January’s Reuters quarterly surveys, over 500 economists surveyed and most economists increased their 2022 inflation projections for 46 of the countries.

Although price pressures will continue to decrease in 2023 as expected, inflation expectations are much more stable than they were three months ago.

Economists have also reduced their forecasts for global growth. The world’s economy grew 5.8% in 2017, but is now expected to shrink to 4.3% in 2022. This decrease comes partly from higher living costs and interest rates. In 2023, growth is projected to be 3.6% and 3.2%, respectively.

Nearly 40% responded to an extra question naming inflation the greatest risk to the global economic system this year. Nearly 35% picked coronavirus variants and 22% were worried about central bank moves too rapidly.

The odds of an accidental landing have increased and it is necessary to make some positive assumptions, and to be able to predict a soft landing in 2022. Deutsche Bank (DE) Group chief economist David Folkerts Landau stated that high inflation and persistent supply chain strains were among the reasons for the outbreak.

GRAPHIC: Reuters Poll: Global inflation forecasts 2022, https://fingfx.thomsonreuters.com/gfx/polling/egpbklkmevq/Reuters%20Poll%20-%20Global%20inflation%20forecasts%202022.png This month’s Reuters polls found 18 of 24 major central banks were expected to lift rates at least once this year, compared to 11 in the October poll.

The U.S. Federal Reserve https://www.reuters.com/business/finance/inflation-fighting-fed-likely-flag-march-interest-rate-hike-2022-01-26 on Wednesday signaled it would raise the benchmark federal funds rate from a record low of 0-0.25% in March after shuttering its bond purchase programme.

The Bank of England https://www.reuters.com/markets/europe/inflation-risk-omicron-slowdown-boe-rate-move-balance-2021-12-16 was the first major central bank to raise rates since the pandemic started and is expected to act again, the Bank of Canada https://www.reuters.com/world/americas/timing-bank-canadas-rates-lift-off-knifes-edge-jan-26-hike-possible-2022-01-21 is also seen hiking soon.

In contrast, most economists expect the European Central Bank https://www.reuters.com/business/euro-zone-inflation-burn-hotter-ecb-rates-stay-ice-2022-01-19 and the Bank of Japan https://www.reuters.com/markets/currencies/japan-pm-kishidas-wage-policies-unlikely-support-economy-this-year-most-2022-01-14 to stay put at least until the end of next year.

While the tightening cycle is in early days in developed markets, many emerging market central banks, with a few notable exceptions like Brazil https://www.reuters.com/article/latam-economy-poll-idUSL1N2U00P3 and China https://www.reuters.com/markets/asia/china-growth-seen-slowing-52-2022-modest-policy-easing-expected-2022-01-13, are waiting for the Fed’s cue while grappling with the pandemic and their own economic challenges.

GRAPHIC: Reuters Poll: Global growth outlook – January 2022, https://fingfx.thomsonreuters.com/gfx/polling/lgvdwxwlqpo/Reuters%20Poll%20-%20Global%20growth%20outlook.png “Over the past three decades, developed market central banks led by the Fed have been inclined to see supply shocks boosting inflation as a drag on growth that should be cushioned,” noted Joseph Lupton, global economist at J.P. Morgan.

Emerging countries face similar challenges, despite major central banks expressing concern that inflation expectations will be close to what they want.

Lupton noted that there is “a lot of pressure on the emerging market central banks to take action to reduce inflationary expectations.”

More than 60% of 46 economies were polled and the growth outlook was not changed or downgraded for 2022. Nearly 90% of respondents (144) said there was an upside risk in their forecasts.

Although most countries experienced a decrease in their growth projections for the fourth quarter and current quarters, this was largely due the Omicron coronavirus variation spreading, it is expected that they will rebound next quarter.

(For more stories, see the Reuters long-term global economic outlook polls package