Global Data Watch  Omicron drag likely to be large, synchronized, and short-lived   Labor market tightness reinforces case for rate normalization  Inflation moderated in December, but forward signals are mixed  Next week: China data show solid December and 4Q21 gains Size matters Two developments dominate the macroeconomic landscape as we turn into  the new year: a sharp slowing in global growth momentum, and a pivot by  DM central banks to an earlier start to policy normalization. If we are right,  the slowdown in growth owes to temporary drags from an inflation spike and  building Omicron wave. In contrast, the rapid move to tight labor markets  promoting the policy pivot is a significant signal of what lies ahead. Sluggish  supply dynamics should persist and combine with healthy growth to show that  the move to earlier monetary policy normalization will also deliver tightening  of substantial size. 

On growth, we have anticipated a material deceleration this quarter as the rising  Omicron wave interacts with the consumer purchasing power squeeze due to last quarter’s inflation surge. December global surveys and US activity readings  point to slowing, alongside declining mobility at the start of the year. Evidence  that the Omicron drag is spreading rapidly is prompting downgrades to currentquarter Asia GDP forecasts. Alongside earlier downgrades to the US and Western Europe—to a projected 1.5%ar and 2.2%ar respectively—the global economy looks likely to post its slowest growth of the expansion this quarter.