Monthly economic brief: March 2022

GDP growth outlook

The economic outlook is more uncertain as a result of the situation in Ukraine, however higher inflationary pressures will slow growth in 2022.

• The situation in Ukraine presents significant uncertainty and risk to the global economic outlook. The initial economic impacts have been seen in an increase in global commodity prices in which Ukraine and Russia are key producers, however the wider economic implications are yet to fully emerge and continue to depend on how the situation and policy responses evolve.
• In December, prior to the situation in Ukraine, the OECD forecast further recovery from the pandemic with global GDP growth of 4.5% in 2022 and 3.2% in 2023, while inflation was forecast to rise to 4.2% in 2022 and ease to 3% in 2023. Subsequent OECD illustrative model simulations in March suggest that global growth could be reduced by over 1 percentage point, and global inflation raised by close to 2.5 percentage points in the first full year after the start of the conflict.^[33]
• At a UK level the Office for Budget Responsibility (OBR) March forecasts, revised down the UK GDP growth forecast to 3.8% in 2022 (revised down 2.2 percentage points from October) and 1.8% in 2023 with the downward revision in the near term reflecting higher inflation weighing on real incomes and consumption.
• The OBR forecast inflation to rise to close to 9% in Q4 2022, mainly reflecting higher global energy prices, with higher inflation outpacing nominal earnings growth. Combined with net tax increases starting April, they estimate that this could result in real UK household disposable income per person falling by 2.2% in 2022-23.^[34]
• The average of new independent forecasts in March (published monthly by HMT) forecast UK GDP growth of 4.1% in 2022 and 1.6% in 2023, which have fallen by 0.3 and 0.4 percentage points respectively over the month.^[35]

• At a Scotland level, the most recent Scottish Fiscal Commission (SFC) forecasts from December 2021 (prior to the latest outturn data following the Omicron wave and developments in Ukraine) expect the Scottish economy to continue recovering from the pandemic with growth of 3.8% in 2022 and 1.3% in 2023.^[36]
• More recently in March, the Fraser of Allander Institute downgraded their forecasts for Scottish GDP growth in 2022 to 3.5% (down from 4.7% in their December forecast), reflecting the impacts on households and businesses of higher inflation, with growth forecast to moderate further to 1.5% in 2023 and 1.4% in 2024.^[37]