Weak start to 2022 won’t deter monetary tightening

While data from the past month have been consistent with global economic activity picking up some pace towards the tail end of 2021, timely data point to a weak turn of the year as the Omicron wave took its toll. For example, virus caution and government restrictions, in concert with rising goods prices, caused real retail sales to fall in all advanced economies in December. And business surveys suggest that services sector activity took a sizable hit in January. However, the manufacturing sector got off more lightly, and the big picture is that with Omicron waves in remission in much of the world, and restrictions either easing or soon to ease, disruption is likely to prove short-lived. Indeed, high-frequency data already reveal a recovery in the past couple of weeks. Central banks were already focussing more on taming above-target inflation than supporting recoveries in real economic activity. But with the downside risks to growth from Omicron soon to pass, the latest virus wave will not get in the way of policymakers tightening the screws.