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The widely feared recession in Europe did not materialise, thanks partly to a mild winter, and China rebounded strongly once Covid restrictions were suddenly lifted. Global growth did slow, but proved remarkably resilient. Labour markets remained very tight, with unemployment rates generally at historical lows. Several forces were playing out, including easing global supply chain bottlenecks, the post-pandemic rotation of global demand back from manufacturing to services, and the effects of repeated generous fiscal support packages. The reversal of commodity prices and a marked slowdown in manufacturing prices provided welcome relief even as stickier services prices gathered steam. Fortunately, there were clear indications that headline inflation was peaking or had started to decline. Inflation continued to hover well above central bank targets across much of the world. High inflation, surprising resilience in economic activity and the first signs of serious stress in the financial system – this is, in a nutshell, what the year under review had in store. How did the global economy fare in the year under review? Even more importantly, what forces shaped its journey? The year under review What follows considers, in turn, each of the three journeys.

And structural policies will be critical.

Prudential policy will continue to play an essential supporting role. Along the way, the perennial but elusive search for consistency between fiscal and monetary policy will again take centre stage. Policymakers will need to work in concert, drawing the right lessons from the past to chart a new path for the future. It is, in fact, an exploration of not one but three interwoven journeys: the journey that has taken the global economy to the current juncture the journey that may lie ahead and, in the background, the journey that the financial system could make as digitalisation opens up new vistas. This year's Annual Economic Report explores the global economy's journey and the policy challenges involved. Each of the two challenges, by itself, would be difficult to tackle their combination is daunting. Indeed, financial stress has already emerged. On the other hand, financial vulnerabilities are widespread: debt levels – private and public – are historically high asset prices, especially those of real estate, are elevated and risk-taking in financial markets was rife during the phase in which interest rates stayed historically low for unusually long. On the one hand, central banks have been tightening to bring inflation back under control: prices are rising far too fast.

Each of them, taken in isolation, is not new but their combination on a global scale is. Policymakers are facing a unique constellation of challenges. The global economy has reached a critical and perilous juncture.

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