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21 January, 2022

Omicron to disturb global economic growth in 2022: GlobalData

GlobalData has revised down its global economic growth forecast for 2022 from 4.6% to 4.5% due to the rapid spread of the Omicron variant.

By Naomi Davies

The emergence of the highly contagious Omicron variant of Covid-19 in late 2021 has led GlobalData to reconsider its global economic growth forecast for 2022. The data and analytics company originally predicted 4.6% growth in 2022, but has reduced this figure to 4.5% due to the rapid increase in Omicron cases around the world.

Based on information from its macroeconomic database, GlobalData forecasts real GDP growth of 1.1% in the US in first quarter of 2022, compared with 1.3% in the last quarter of 2021. The UK’s real GDP growth is also expected to slow due to supply chain bottlenecks and high infection rates. GlobalData expects the UK’s real GDP growth to reduce to 0.7% in the first quarter of 2022, compared with 0.9% during the last quarter of 2021.

In contrast, real GDP growth in Japan is estimated to increase to 1.6% in the first quarter of 2022, up from 1.3% in the final quarter of 2021, due to additional levels of government support.

After an initial rebound in the first half of 2021, several advanced economies including the US, the UK, France and Italy are losing growth momentum. Emerging markets are also struggling due to unequal vaccination coverage, less room to manoeuvre for additional policy support and the impact of China's economic slowdown.

Gargi Rao, economic research analyst at GlobalData, says: “The rapid spread of Omicron in more than 100 countries, along with rising global inflation rates, an energy crisis stemmed out of coal shortages, widespread political tensions and a slowdown in manufacturing output amid the chips shortage, remains the major downside risk to global growth in 2022.

“Despite the risks and the expected slowdown in economic growth, India and China are expected to drive global growth in 2022. On the other hand, the Federal Reserve is expected to tighten monetary policy measures to tame high inflation levels [in the US, which] may result in capital outflows from emerging nations.”

Cautious optimism for FDI growth in 2022

Even with GlobalData’s adjusted economic growth forecast, foreign direct investment (FDI) levels are still expected to recover lost ground in 2022.

Glenn Barklie, chief economist at Investment Monitor, comments: “We remain cautiously optimistic in terms of FDI for 2022. The impact of Omicron is revising down economic growth predictions marginally. Lockdowns and restrictions are the key barriers affecting FDI. Investors will continue to take longer-term, optimistic views of a return to normal.”

Tourism sector is on road to recovery

Approximately 12,000 flights were cancelled globally in December 2021 due to the spike in Omicron cases and subsequent shortages of airline staff. As travel restrictions are reintroduced, tourism-dependent countries are likely to be heavily impacted in early 2022.

However, GlobalData predicts a resurgence in the tourism sector later in the year as travellers embark upon the travel plans that they had postponed. According to forecast figures from the company’s travel and tourism database, the number of air passengers globally for long-haul flights will grow by 44% in 2022, and by 48% for short-haul flights.

Supply chain crisis is expected to ease

With production activity set to improve, supply chain blockages are expected to ease throughout 2022. The business outlook remains largely positive but a surge in Omicron cases as well as tight monetary policies may impact investment levels.

Moreover, GlobalData warns that a premature withdrawal of policy support could hamper the global recovery. Public spending cuts may also leave the private and public sectors vulnerable in early 2022.

Guidance by fiscal and monetary authorities essential to growth

Overall, the risk to global economic recovery in 2022 seems balanced. Rao says: “Globally, households have accumulated huge savings, which once invested will drive up economic activity."

In addition, countries such as China and India are investing in renewable energy, which could attract more Western investors.

The Regional Comprehensive Economic Partnership deal, which entered into force in January 2022, is also expected to stimulate growth across the Asia-Pacific region. The deal reduces trade barriers between 15 Asia-Pacific countries, helping strengthen investment opportunities across the region.

Still, GlobalData underlines the importance of guidance from fiscal and monetary authorities in promoting economic growth. Rao concludes: “The need of the hour is to have clear supervision by fiscal and monetary authorities on their policy strategies, which will be crucial to maintain market confidence and public support.”

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