The greatest danger for 2022 and 2023 is still inflation from demand exceeding available supply. The Federal Reserve (Fed) is belatedly responding to this threat in the United States where it may need to raise interest rates from the current 0% floor; “sooner or at a faster pace” than officials initially thought.
THE start of 2022 is an eerie echo of 2021. Omicron, the new variant of coronavirus, has raised infections in all parts of the world, threatening economic prospects for the year ahead.
But rather than a rerun of the severe downturns seen in 2020, the outlook is one of high global inflation and rising interest rates, with severe risks for the more vulnerable emerging and developing economies (EDEs).
In 2021, advanced economies were more resilient than expected to Covid-19 waves even without effective vaccines. The Alpha wave was appalling for people’s health, but hardly dented the global recovery. With more monetary and fiscal stimulus than proved necessary, the result was excess demand and inflation.
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