KUALA LUMPUR: Global gross domestic product (GDP) is expected to grow by 5.5 per cent this year and 4.1 per cent in 2022 as the Omicron variant's arrival increases uncertainty and downside risk about the near-term trajectory, according to Moody’s Analytics.

       "GDP growth will steadily decelerate over the next year as policy support fades, pent-up demand cools, and supply-chain stress lingers,” it said in a statement today.

       The research firm, however, said that the emergence of Omicron is not expected to derail recovery momentum.

       "Most of the globe is in an improved position compared with mid-2021, with most economies in recovery or expansion mode. But divergence of performance will proceed through 2022, influenced by vaccination coverage, effectiveness managing outbreaks and policy support,” it said.

       In August, Moody's Analytics had forecast global GDP to rebound 5.7 per cent this year following a 3.6 per cent contraction in 2020.

       In the latest statement, it said the Omicron variant has driven business sentiment lower, as have supply-chain disruptions eating into inventories and hurting capacity to meet increased demand.

       "While the economic recovery has yielded improved sales and employment intentions, caution has increased. Expectations into next year are mixed as uncertainty remains high,” it stressed.

       It also said that monetary policy normalisation would be an important fixture of the economic landscape in 2022.

       "The Federal Reserve is leading the charge with more aggressive asset tapering on the back of inflation being less transitory than initially thought. The first hike in the federal funds rate is expected by September 2022,” it said.

       According to Moody's, the United States (US) and China will continue driving global growth.

       The US GDP growth is forecast at 5.6 per cent in 2021 and 4.4 per cent in 2022 fuelled by fiscal stimulus while China's growth is forecast at 7.9 per cent in 2021 and 4.7 per cent in 2022.

       "China’s economy faces challenges on a number of fronts, including power shortages, a cooling property market, and a buildup of risks in the financial sector,” it added.

       On Asia, Moody’s said economic recoveries are largely back on track and vaccination coverage has increased substantially across most of the region, but there are exceptions.

       "Indonesia and the Philippines stand out due to their low vaccine coverage, increasing vulnerability to another infection wave that necessitates the reintroduction of movement controls,” it said.

       On the global supply chains, Moody's said it is currently under stress but thanks to production disruption from COVID-19 as well as a surge in goods demand, there has been a lift in transport costs, shipping times and commodity prices.

       Global supply chains are lean when it comes to inventory build-up and carry strong interdependencies, so one issue along the chain can have broader ripple effects, it cautioned. - Bernama