Report : Markets & Economy | December 13, 2021

Vanguard economic and market outlook for 2022: Striking a better balance

As we come to the end of 2021, parts of the economy and markets are out of balance. Labor demand exceeds supply, financial conditions are exceptionally loose even when compared with improved fundamentals, and policy accommodation remains extraordinary.

The gradual removal of policy support and stimulus packages enacted to combat the pandemic-driven downturn will pose a new challenge for policymakers and a source of risk for financial markets.

Our outlook in brief:

  • Global growth: The global economic recovery is likely to continue in 2022, although we expect the low-hanging fruit of rebounding activity to give way to slower growth whether supply-chain challenges ease or not. Labor markets will continue to tighten, with several major economies including the U.S. quickly approaching full employment. In both the United States and the euro area, we expect growth to slow down to 4%. Our forecasts are for around 5.5% in the U.K. and about 5% in China.
  • Global inflation: Consumer prices have continued to trend higher across most economies, driven by a combination of higher demand as pandemic restrictions are lifted and lower supply owing to global labor and input shortages. We anticipate that supply/demand frictions will persist well into 2022 across developed and emerging markets, but a return to 1970s-style inflation is not in the cards. Wage- and shelter-based inflation is likely to remain elevated given our employment outlook and will be the critical determinant in central banks' adjustment of policy.
  • The financial markets: A backdrop of low bond yields, reduced policy support, and stretched valuations in some markets offers a challenging environment despite solid fundamentals. We are projecting the lowest 10-year annualized returns for global equities since the early 2000s, with more attractive returns expected outside the U.S. Even if short-term interest rates rise in developed markets over the coming years, bonds are unlikely to produce negative total returns given our outlook for inflation and secular forces keeping long-term rates low.

Learn more about our views on the global economic outlook, inflation, monetary policy, and the implications for investors.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
  • Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.