- Two powerful forces – the Covid-19 pandemic and the Russian invasion of Ukraine – shaped economic outcomes over the past year.
- Growth was resilient, at least until the outbreak of the Russia-Ukraine conflict. Inflation rose to multi-decade highs against a backdrop of persistently goods-intensive demand and constrained supply.
- Stagflation risks loom large, owing to high inflation, the war in Ukraine and slower growth in China. Pre-existing macro-financial vulnerabilities magnify the risks, which could disrupt financial systems and strain emerging market economies.
- The most pressing monetary policy task is to restore low and stable inflation, while limiting as far as possible the cost to economic activity and preserving financial stability. Over the medium run, there is a need to sustainably rebuild monetary and fiscal buffers. Governments should reignite supply side growth drivers.