It feels like just yesterday we were all holding our breath, wondering what the next economic turn would bring. And honestly, even now, with a bit more clarity, the picture is still quite dynamic. The global economy, as it turns out, is indeed on a recovery path, but it's not exactly a smooth, straight line. Think of it more like a winding road with a few unexpected bumps and detours.
What's causing these bumps? Well, the reference material points to a few key culprits: persistent supply bottlenecks that are slowing down production, rising commodity prices that are making things more expensive, and the ever-present shadow of new COVID-19 variants, like Omicron, which continue to cast a cloud over immediate growth prospects.
Looking at the numbers, the global economy (excluding the euro area) was estimated to grow by a solid 6.0% in 2021. But then, the projections for the following years show a gradual slowing down: 4.5% in 2022, 3.9% in 2023, and 3.7% in 2024. It's a similar story for the euro area's foreign demand, projected to expand by 8.9% in 2021, then ease to 4.0% in 2022, before picking up slightly to 4.3% in 2023 and settling at 3.9% in 2024. Interestingly, these figures for 2021 and 2022 have actually been revised downwards from earlier forecasts, largely due to those pesky supply chain issues impacting global imports.
The good news, or at least the hopeful part, is that these supply bottlenecks are expected to start easing by the second quarter of 2022 and hopefully be fully resolved by 2023. We're also seeing export prices for euro area competitors on the rise, a reflection of higher commodity prices, those supply constraints, and a recovering demand.
Meanwhile, the euro area itself is showing resilience. While growth moderated towards the end of last year, it's expected to pick up again, driven by domestic demand. The labor market is looking healthier, with more people employed and fewer on job retention schemes, which is great news for household incomes and spending. Plus, those savings accumulated during the pandemic are likely to provide a nice cushion for consumption.
However, it's not all smooth sailing. Some countries have had to reintroduce tighter containment measures to deal with new waves of the virus, which could put a damper on sectors like travel, tourism, and hospitality. Consumer and business confidence can be fragile, and the emergence of new variants adds a layer of uncertainty. And let's not forget rising energy costs, which are definitely a headwind for consumers.
Production in manufacturing is being hampered by shortages of equipment, materials, and labor, leading to delays in construction and slowing down parts of the services sector. These bottlenecks, as mentioned, are expected to linger but should ease over the course of 2022.
On the public finance front, while the COVID-19 crisis certainly put a strain on government budgets in 2021, there's a clear path to improvement. The deficit ratio, which peaked at 7.2% of GDP in 2020, is estimated to have dropped to 5.9% in 2021 and is projected to fall further to 3.2% in 2022, stabilizing just below 2% by 2024. This improvement is a combination of better fiscal balances and, importantly, the economic cycle kicking in more favorably from 2022 onwards.
The fiscal stance, after a strong expansion in 2020, saw only a slight tightening in 2021. For 2022, a more considerable tightening is anticipated, though less than previously forecast, mainly due to the unwinding of emergency support measures. This tightening is expected to continue, but at a slower pace, as significant support will remain in place for the coming years. The emphasis is on targeted, growth-friendly fiscal measures to complement monetary policy and help the economy adapt to structural changes. The successful implementation of programs like Next Generation EU and the "Fit for 55" package are seen as crucial for a stronger, greener, and more balanced recovery across the euro area.
So, while the path ahead isn't perfectly clear, there's a sense of cautious optimism. The projections for annual real GDP growth in the euro area are 5.1% for 2021, 4.2% for 2022, 2.9% for 2023, and 1.6% for 2024. It's a story of recovery, adaptation, and navigating the complexities of a post-pandemic world.
