Chinese economy set to overtake EU in 2022 while global recovery tested by possible Omicron impacts - PwC Global Economy Watch

• 2022 expected to be first year the Chinese economy overtakes that of the EU in market exchange rates and where the Indian output hits the US$3 trillion mark

• Job market in the G7 is expected to create about 10 million jobs—the most since at least the 1980s—with the labour market reaping the benefits of running a “high pressure” economy

• Workers are set to benefit from increased bargaining power and employers are likely to respond with more flexibility and non-financial benefits 

• More resources will be dedicated to making supply chains more resilient and domestic, particularly for strategic industries ranging from semiconductors to car battery manufacturing. This will be one of the defining trends of the remainder of the decade.

Global GDP growth is expected to increase by around 4.5% in market exchange rates in 2022 as global economies continue to grow, and are likely to remain resilient in the face of the Omicron variant, according to base case projections in PwC’s latest Global Economy Watch. The outlook, however, remains highly uncertain.  

The US, EU and China will remain the world’s largest economies for the foreseeable future, although 2022 is expected to be the first year the Chinese economy overtakes that of the EU. Meanwhile, India’s GDP is expected to become $3tn which is a growing indication of how the country is using its demographic might to transform its economy. 

Barret Kupelian, senior economist at PwC, says,

“Even though the short-term outcome is highly uncertain due to the potential economic impact of Omicron, in our base case scenario we expect the larger economies to stay on their recovery path for the rest of the year with the global economy growing at around 4.5% in market exchange rates, above its long-term average rate. We are likely to see some advanced economies slow down in the first quarter of this year due to higher inflation rates, although growth is likely to pick up later.

“Obviously, however, this is highly dependent and fast-changing—a return to the severe health impacts and lockdowns of 2020 would inevitably have a significant impact on global output, perhaps by as much as 0.5 percentage points compared to our base case growth projection.”

Jobs-led boom set to benefit workers

The “high pressure” nature of the economic recovery — where monetary and fiscal policy has focused on supporting advanced economies through the pandemic — is expected to continue to sustain a jobs boom, with nearly 10 million jobs created across the G7 in 2022.

Hannah Audino, economist at PwC, says,

“This is the highest volume of jobs created for the G7 since the mid-1980s, and a ‘hot’ labour market is expected to increase the bargaining power of workers. Yet this does not necessarily mean that wages will continue the fast growth recorded last year.

“In particular, we think 2022 will be the year of the ‘flexible employer’ as employers focus on providing even greater flexibility — building on existing trends such as shorter working weeks or hybrid employment models — to attract workers, as well as other non-financial benefits.” 

Rise of the ‘just in case’ supply chain

The global supply chain issues which have created economic disruption throughout 2021 are expected to ease in 2022, which will reduce inflationary pressures in the second half of the year and create extra capacity for central banks to respond to further disruption caused by the pandemic.

“While supply chain disruption will ease, the longer-term impact will be a greater focus on ‘strategic autonomy’ where policy focuses on domestic production for key industries,” says Barret Kupelian. “The shift from the ‘just in time’ to the ‘just in case’ economy is a trend we expect to see intensify in most advanced economies this year and to continue for the remainder of the decade,” Kupelian added.