World GDP projections point lower

The European Central Bank (ECB) revised down its projections for world GDP in real terms for 2023 and 2024, excluding the euro zone.

Thus, the Bank estimates that world real GDP (excluding the euro area) expanded by 6.3% in 2021, and the pace of growth is expected to moderate to 4.1% in 2022 and 3.6% in both 2023 and 2024.

It also forecasts growth in foreign demand from the euro area moderate from 9.9% in 2021 to 4% in 2022, 3.2% in 2023 and 3.6% in 2024.

Compared to world imports, the euro area’s foreign demand is more affected by the conflict, given the relatively large proportion of the euro area’s trade that derives from Russia and Central and Eastern European countries that are particularly exposed to the headwinds of conflict.

Compared with the previous projections, the growth rate of euro area foreign demand has been left unchanged for 2022 (as the impact of the invasion fully offsets the positive carry-over effect from 2021) and has been revised downwards for 2023 and 2024.

However, global GDP expanded at a solid pace during 2021, despite headwinds related to the resurgence of the coronavirus pandemic and supply bottlenecks.

Survey indicators point to continued growth in activity in the first quarter of 2022.

However, the war between Russia and Ukraine casts significant uncertainty on a solid global outlook.

World GDP

Recent surveys of economic activity suggest growth momentum picked up from January to February as supply-side and pandemic pressures eased.

But due to the economic fallout from the war and the gradual withdrawal of stimulus policies, global growth projections have been revised downwards, particularly for 2022 and 2023, compared to December projections.

Meanwhile, supply bottlenecks are expected to begin to relax during 2022 and fully recover in 2023.

Export prices of euro area competitors have been revised upwards for 2022 and 2023 as higher commodity prices, supply bottlenecks and a recovery in demand overlap.

While the future course of the pandemic remains a major risk factor affecting baseline projections for the world economy, the war between Russia and Ukraine significantly amplifies uncertainty.

According to the ECB, the tail risks to the downside of further escalation could be significant and derail the global recovery, while also fueling inflationary pressures.