Macroeconomic environment

In 2021, the global economy grew significantly, recovering in part from the crisis caused by the pandemic, which caused a sharp fall in global GDP in 2020. The significant upturn in global growth has been due to the progress in vaccination against COVID-19 and the significant economic stimuli adopted by public authorities.

Activity indicators show, however, that the economic recovery process has lost momentum since the middle of last year, while inflation has risen significantly, in an environment where the effects of the emergence of new variants of the COVID-19 have contributed to reinforcing the problems in global supply chains observed since the beginning of 2021.

The recent outbreak of the war between Ukraine and Russia and the sanctions it has unleashed represent a significant supply shock to the world economy, which is likely to reinforce the trend towards growth moderation and accentuate the current inflationary pressures, mainly in European countries, due to their relatively significant economic ties with Ukraine and Russia. The economic effects are expected to come mainly through higher commodity prices, but also through financial and confidence channels, as well as a further deterioration of problems in global supply chains.

Despite the current high uncertainty, the central scenario that BBVA Research uses in its estimates considers that the recovery process of the global economy is expected to continue in the coming months, albeit at a slightly slower pace than expected in autumn 2021. According to BBVA Research, after increasing 6.1% in 2021, global GDP will grow 4.0% in 2022, four tenths below what was expected three months ago. GDP growth in 2022 is expected to remain relatively high in the United States and China (3.1% and 5.2%, respectively), and to a lesser extent also in Europe (around 2.0%) where the impact of the war in Ukraine would be somewhat cushioned by new fiscal stimuli measures.

Against the background of higher commodity prices and additional constraints on global supply chains, inflation, which currently stands above 7% in both the United States and the Eurozone, is expected to remain high in 2022, around 6% on average, in both geographical areas, while it will remain more contained in China, according to BBVA Research's estimates.

Despite the likely negative impact of the war on the economic activity, the major central banks are expected to remain focused on rising inflation and continue to implement their plan to withdraw monetary stimuli. In the United States, the Federal Reserve initiated the process of normalizing monetary policy interest rates in March, which, according to BBVA Research, could converge towards around 2% by the end of 2022. In the Eurozone, the ECB completed the pandemic emergency purchase program (PEPP). Although the asset purchase program (APP) is maintained, asset purchases will be moderated over the coming months, paving the way for monetary policy interest rate hikes starting in the last quarter of 2022.

Risks on this economic scenario are significant and are biased downwards in the case of activity. These include, among others, (i) a deterioration of the war between Ukraine and Russia and a further escalation of sanctions; (ii) an economic recession and financial turbulence caused by the withdrawal of monetary stimuli and (iii) higher mobility restrictions in China due to the increasing cases of COVID-19.