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    There’s been a steady drumbeat of negative news since our Research analysts’ last quarterly outlook in late September. Many supply chain problems have not been resolved, while inflation has been surprisingly strong and persistent. The all-important China property sector is slowing sharply, and the country is enforcing new COVID-related lockdowns. Bond markets have been turbulent.

    But away from the volatility of recent weeks, our Research analysts see three longer-term trends offering reason for optimism.

    Investors still have faith in central bankers’ ability to tame rising prices

    Global inflation has been higher than expected all year, and is unlikely to ease for a while. The integrated nature of global supply chains means even a small component can create stress points. Add a surge in goods demand from the West, new COVID lockdowns in East Asia and rising energy costs, and it’s no surprise that inflation has been a topic of debate.

    In response, bond markets have pulled forward their estimates of when central banks are likely to increase interest rates. But it is notable that they have not pushed up the so-called terminal rate – or the rate that is consistent with full employment and stable prices. In the US, for example, markets expect a sub-1.75% policy rate, even by the end of 2024. In other words, investors are saying that the Fed will not have to push rates very high to head off the threat of inflation.

    If bonds have kept the faith through the strongest inflation since the global financial crisis, we don’t see that changing in 2022, when inflation should decelerate as base effects come into play.
    Ajay Rajadhyaksha, Head of Macro Research, Barclays

    Global growth is still in decent shape

    Third-quarter data surprised to the downside. In the US, for example, GDP growth was just 2% in the period, a big fall from 6%-plus growth in the first half, while China also decelerated sharply. However, our analysts conclude that fears of a serious global slowdown are overplayed. The Atlanta Fed’s real-time GDP tracker is at a seasonally-adjusted annual rate of 8.2% growth for the US in Q41. The Eurozone should keep growing well above trend for several quarters2.

    Household savings rates remain elevated across the West, and should be a cushion for consumption in 2022. In the US we assume a gradual pick up in labour force participation, as behavioural patterns normalise. Eventually, supply chain bottlenecks should ease, production will pick up, and the resultant inventory cycle should add to GDP.

    Our analysts expect the world economy to grow at 4.4% in 2022, slower than 2021 but still robust by historical standards.

    1 Federal Reserve Bank of Atlanta 'GDP Now' November 10, 2021

    2 Barclays Research

    Supply chain disruptions have drawn market and media attention

    Chart showing euro-area GDP growth from 2019 to 2022 (forecast)

    Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. Source: Google Trends, Barclays Research

    There is encouraging news on the pandemic

    Surges in infections have hampered economic recoveries all year. But the path for the world to return to something like normality is stronger than it ever has been due to key developments from the pharmaceutical industry:

    Western economies like the US have approved COVID vaccines for children.

    An easy-to-take oral treatment is now a reality, which should lead to reduced viral spread and less pressure on hospital resources.

    Requirements for restrictions on mobility could ebb away, allowing greater economic activity.

    2022 will not proceed in a straight line, of course. Inflation might remain stickier than markets expect. An end to the expansion of the Federal Reserve’s balance sheet could upset the rally in risk assets. Widespread usage of the new COVID anti-virals will take time, and until then, further lockdowns and new variants cannot be ruled out. China’s property sector remains another source of concern.

    Overall, our Research analysts believe the good outweighs the bad, and look to 2022 in an optimistic frame of mind.

    Read the full report

    Barclays’ Global Outlook, published quarterly, contains recommendations for investors across all major economies and markets. Global Outlook: More good than bad is available to Investment Bank clients on Barclays Live.

    Important content disclosures

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    About the analyst

    Ajay Rajadhyaksha is Head of Macro Research at Barclays, based in New York. He oversees the global research and strategy efforts of the economics, rates, FX, commodities, emerging markets, securitised, and asset allocation teams. Since joining Barclays in 2005, Ajay has held various positions, including Co-Head of FICC Research and before that, Head of US Fixed Income Research and US and European Securitised Research.

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