Budget Cuts Will Take a Big Chunk Out of World Economy Next Year
- ‘Fiscal taper’ set to drag on 2022 growth across much of world
- U.K. tops list of major economies poised for budget tightening
Financial markets are fixated on how the world’s central banks will adjust monetary policy as they grapple with inflation. But it’s fiscal tightening -- the withdrawal of pandemic spending -- that will likely have more impact on the global economy next year.
Public programs to support households and businesses have been the most powerful engine of recovery from the Covid slump -- and now governments are hitting the brakes. The money they’ll pull out of their economies in 2022 amounts to some 2.5 percentage points of the world’s gross domestic product, five times bigger than anything that happened during the turn to austerity after the 2008 crisis, according to UBS estimates.
The belt-tightening points to slower economic growth, though it could also help to cool the inflationary pressures bubbling up in some countries. It’s happening at different speeds in different parts of the world, and for a variety of reasons.