Global economy: big factors to watch closely in 2022
Will 2022 be the year the global economy recovers from the pandemic? That’s the big question on everyone’s lips as the festive break draws to a close.
A complicating factor is that most of the latest major predictions were released in the weeks leading up to the omicron variant swept the world. At the time, the mood was that the recovery was well and truly around the corner, with the IMF projecting 4.9% growth in 2022 and the OECD 4.5% projection. These numbers are lower than the global growth of around 5% to 6% that is expected to be achieved in 2021, but it represents the inevitable rebound of reopening from the pandemic lows of 2020.
So what difference will omicron make for the state of the economy?
We already know that it had an effect as Christmas approached, with for example british hospitality take a hit while people stayed away from restaurants. For the months ahead, the combination of increased restrictions, cautious consumers and people on sick leave is expected to wreak havoc.
Still, the fact that the new variant looks smoother than originally feared probably means the restrictions are lifted faster and the economic effect is more subdued than it could have been. .
Israel and Australia, for example, are already easing restrictions despite a high number of cases. At the same time, however, until the west tackles very weak vaccination rate in some parts of the world, don’t be surprised if another new variant causes more damage to public health and the global economy.
As it stands, the UK think tank Center for Economics and Business Research (CEBR) published a more recent study Forecast 2022 just before Christmas. He predicted that global growth would reach 4% this year and that the total world economy would hit a new all-time high of 100,000 billion US dollars (74 trillion pounds sterling).
The question of inflation
Another big unknown is inflation. In 2021, we saw a sudden and sharp rise in inflation resulting from the recovery of global economic activity and bottlenecks in the economy. global supply chain. There have been a lot of debate as to whether this inflation will prove to be temporary, and central banks are under pressure to ensure that it does not worsen.
So far, the European Central Bank, the Federal Reserve and the Bank of Japan have all refrained from raising interest rates from their very low levels. The Bank of England, for its part, followed the The IMF’s opinion and increased rates from 0.1% to 0.25% in December. This is too little to curb inflation or do anything good besides increasing the cost of borrowing for businesses and increasing mortgage payments for households. Having said that, the the markets bet that further UK rate hikes will follow and that the Fed will also begin to increase rates in the spring.
Yet the most important question about inflation is what happens to quantitative easing (QE).
It was the policy of increasing the money supply that saw the big central banks buy some US $ 25 trillion in government bonds and other financial assets in recent years, including around US $ 9 trillion thanks to Covid.
The Fed and the ECB continue to QE and add assets to their balance sheets every month. The Fed is shrinking the pace of these purchases with a view to halting them in March, after recently announcing that they were bringing forward the end date of June. ECB also said he would cut QE, but vowed to continue for now.
Of course, the real question is, what are these central banks doing in practice? The end of QE and rising interest rates will undoubtedly dampen the recovery – the CEBR forecasts, for example, assumes that he will see the bond, stock and real estate markets fall from 10% to 25% in 2022. It will be interesting to see if the prospect of such an upheaval forces the Fed and the Bank of England to revert to more accommodating – especially when you factor in the lingering uncertainty around Covid.
Global Politics and Trade
The trade war between the United States and China is expected to continue in 2022.
The ‘Phase 1‘the agreement between the two countries, in which China agreed to increase its purchases of certain US goods and services by a combined US $ 200 billion in 2020 and 2021, missed its target about 40% (like end of November).
The agreement has now expired and the big question for international trade in 2022 is whether there will be a new ‘Phase 2’ agreement. It’s hard to feel particularly optimistic here: Donald Trump may have left office a long time ago, but the US China strategy remains distinctly Trumpian, without any significant concession being offered to the Chinese under Joe Biden.
Elsewhere, Western tensions with Russia over Ukraine and a further escalation of economic sanctions against Putin may have economic consequences for the global economy, especially given Europe’s dependence on the United States. Russian gas. The more engagement we see on both fronts over the next few months, the better for growth.
Whatever happens politically, it is clear that Asia will be very important for the growth prospects in 2022.
Large savings such as Great Britain, Japan and the eurozone were all even smaller than before the pandemic in the third quarter of 2021, the latest data available. The only large developed economy that has already recovered its losses and regained its pre-Covid size is United States.
Economic growth by country since 2015
On the other hand, China has managed the pandemic well – but with tight controls – and its economy has grown strongly since the second quarter of 2020. It has been fighting with a heavily over-indebted real estate market, but seems to have managed these problems relatively smooth. Although the jury is not sure to what extent China’s debt problems will be a drag in 2022, some like Morgan Stanley argue that strong exports, accommodating monetary and fiscal policies, relief for the real estate sector and a slightly more relaxed approach to carbon reduction point to a decent performance.
As for India, whose economy experienced a double dip during the pandemic, it is showing a strong positive trend with 8.5% growth expected in the coming year. So I suspect that emerging Asia will carry global growth in 2022, and the world economic center of gravity will continue to move east at an accelerated rate.