May 23, 2022 - World

Survey of economists: More supply shocks and inflation coming in 2022

Illustration: Sarah Grillo/Axios

DAVOS, Switzerland — Hopes of a robust global economic recovery in 2022 have been replaced by expectations for high inflation, lower real wages and further supply shocks, according to the quarterly Chief Economists Outlook from the World Economic Forum (WEF).

The big picture: The primary reasons for the gloomy forecast are Russia's invasion of Ukraine and the resulting sanctions and shortages, as well as new COVID-19 outbreaks and lockdowns, particularly in China.

Details: The quarterly report is based on a survey of 24 chief economists at some of the world's biggest corporations, banks and multilateral lenders.

  • It was released Monday at WEF's annual meeting in Davos, where inflation and supply chain disruptions have been near the top of the agenda.
  • Flashback: For the previous edition, in Nov. 2021, most of the economists expected inflation to be a short-term phenomenon that central banks could contain. That confidence is fading.

Breaking it down: More than 90% of the economists surveyed expect "high" or "very high" inflation in Europe and the U.S. in 2022. Largely as a result, two-thirds of respondents expect real wages to decline in advanced economies in 2022, while 90% expect them to fall in low-income economies.

  • In the Middle East and Africa, meanwhile, the rising food and fuel prices are expected to generate severe food insecurity.
  • "At the current trajectory, the world is on track for the worst food crisis in recent history compounded by the additional pressure of high energy prices," the report notes.

Expectations among the general public are also fairly grim, according to an IPSOS poll commissioned by WEF.

  • Respondents in France, Germany, Italy, Japan, Poland and the U.K. were all roughly twice as likely to say they expect their standard of living to decline this year rather than rise.
  • In Turkey, where inflation has spiked precipitously, 62% expect their standard of living to fall.
  • In the U.S., Australia and Canada, respondents were a bit more optimistic, with more expecting living standards to rise than fall, but large pluralities expecting them to stay about the same.
  • Three-quarters of Americans expect their groceries and fuel to get more expensive over the next six months. Those percentages are even higher across Europe. Japan was the only country polled where respondents generally are not expecting costs to rise.

The bottom line: “We are at the cusp of a vicious cycle that could impact societies for years. The pandemic and war in Ukraine have fragmented the global economy and created far-reaching consequences that risk wiping out the gains of the last 30 years," writes Saadia Zahidi, managing director for WEF.

  • One additional consequence could be a scramble for supplies of fossil fuels, rather than more investment in green energy, the report notes.

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