Years Corona virus disease It is full of predictions that have gone wrong. For anyone looking into 2022, this should be enough to reflect.
Most analysts, including Bloomberg Economics, base their scenario on a strong recovery with a slowdown in prices and a change in emergency monetary policy settings.
What can go wrong? a lot of things.
Micron, Continuous Inflation, Fed Takeoff, Evergrande ChinaAnd Taiwan, Emerging markets a difficult race Brexit, a new crisis euro – All this appears in the list of risks.
Some things may go better than expected. Governments can decide to keep the financial support in place.
China’s latest five-year plan could spur stronger investment. The money saved in the pandemic can boost spending globally.
Watch the 2022 global economic risks:
microns and more masses
It is too early to make a final verdict on the omicron variant of Covid-19.
It appears to be more contagious than its predecessors, and can be less lethal as well. This would help the world return to a normal pre-pandemic state – which means spending more money on services.
Blockades and cautions by Covid kept people out of gyms or restaurants, for example, and encouraged them to buy more things.
Rebalancing spending could boost global growth to 5.1% from Bloomberg Economics’ 4.7% forecast.
But we may not be so lucky. The more contagious and deadly alternative would drag the savings. Until a three-month return to the most severe restrictions of 2021 – countries like United kingdom It has already moved in that direction – it could slow growth from 2022 to 4.2%.
In this scenario, demand will be weaker and global supply problems are likely to persist, with workers removed from the labor market and more logistical complications. Earlier this month, the Chinese city of Ningbo – home to one of the world’s busiest ports – suffered a new siege.
In early 2021, it was expected to be United States of America You will end the year with inflation 2%. Instead, it’s closer to 7%.
In 2022, once again, the consensus predicts that inflation will end next year near target levels. Another important difference is possible.
The omicron is just a possible cause. Wages, which are already rising rapidly in the United States, could rise even more.
tensions between Russia it is in Ukraine It could cause an increase in gas prices. With climate change bringing more devastating weather events, food prices could continue to rise.
Not all risks are in the same direction. A new wave of the virus could hit travel, for example – driving down oil prices.
However, the combined effect could still be an inflationary shock combined with stagflation that leaves the Fed and other central banks without easy answers.
Powell towards higher interest rates
Recent history shows how a narrow Fed is posing problems for the markets.
Adding to the risks this time the asset prices are already high. The S&P 500 is approaching bubble territory, and accelerating home prices suggest that the housing market’s risks are greater than at any time since the 2007 mortgage crisis.
Bloomberg Economics laid out a model of what would happen if the Fed implemented three hikes in 2022 and indicated that it would hold until interest rates hit 2.5%, driving up Treasury yields and expanding credit spreads. The result: a recession in early 2023.
The Federal Reserve and Emerging Markets
Fed takeoff could mean a hard landing for emerging markets. High US interest rates usually boost the dollar and lead to capital outflows – and sometimes currency crises – in developing economies.
Some are more at risk than others. In 2013 and 2018, Argentina was, South Africa e Turkey who suffered the most. Add Brazil it’s the Egypt — Call them BEASTs — for a list of five economies at risk in 2022, based on a series of metrics compiled by Bloomberg Economics.
Saudi Arabia, Russia and Taiwan, with little debt and strong current account balances, appear to be less prone to capital flight in the emerging world.
China can hit a great wall
In the third quarter of 2021, the Chinese economy stalled. The cumulative burden of the Evergrande crash, the recurring meltdowns of Covid, and energy shortages have reduced annual economic growth to well below the 6 percent pace the world is accustomed to.
While the energy crisis is expected to subside in 2022, the other two problems may not. Beijing’s Covid Zero strategy could mean lockdowns to contain Omicron.
With demand weak and funding tight, real estate construction – which drives about 25% of China’s economy – may have to fall further.
The base scenario for Bloomberg Economics is for China to grow 5.7% in 2022. A slowdown to 3% would cause waves around the world, leaving commodity exporters without buyers and potentially undermining the Fed’s plans.
Political turmoil in Europe
Solidarity between leaders supporting the European project and the effectiveness European Central Bank Help keep government borrowing costs under control Europe Facing the Covid crisis.
Next year, they could both be gone.
A struggle for the Italian presidency in January could bring down Rome’s fragile alliance. France goes to the polls in April with the president Emmanuel Macron Facing challenges from the right.
If euro skeptics gain strength in the bloc’s major economies, that could break the calm in European bond markets and deprive the European Central Bank of the political support it needs to respond.
Feeling the impact of Britain’s exit from the European Union
Negotiations between the UK and the EU over the Northern Ireland Protocol – a doomed attempt to entrench an open land border service and a closed customs union – could make a splash in 2022. It will be hard to get to yes.
What happens if negotiations fail? Based on the pre-Brexit crises, uncertainty would affect business investments and undermine the pound, leading to increased inflation and eroding real income.
The future of fiscal policy
Governments have spent heavily to support workers and businesses in this pandemic. Many now want to tighten their belts.
The decline in public spending in 2022 will amount to about 2.5% of global GDP, about five times the austerity measures that slowed recovery after the 2008 crisis, according to UBS estimates.
There are exceptions. Japan’s new government has announced another record stimulus, and Chinese officials have pointed to a shift in support of the economy after a long period of control over the budget.
Fiscal policy in the United States fluctuated between stimulating and slowing the economy in the second quarter of 2021, according to the Brookings Institution.
This is expected to continue next year, despite the president’s plans Joe Biden As for investing in clean energy and business daycare, it will limit resistance if they get congressional approval.
Food prices and bustle
Hunger is a historical factor in social unrest. A combination of the effects of Covid and bad weather has pushed global food prices close to record levels, and could keep them high for the year ahead.
The recent food price shock in 2011 sparked a wave of popular protests, particularly in the Middle East. Many countries in the region are still exposed.
Already under pressure, Sudan, Yemen and Lebanon appear to be at least as vulnerable today as they were in 2011, and some of them are even more vulnerable. Egypt is a little better.
Popular uprisings are rarely local events. The risk of broader regional instability is real.
policy or geographic location
Any escalation between mainland China and Taiwan, from blockade to full-blown invasion, could attract other world powers – including the United States.
A great power war is the worst-case scenario, but one other than that includes sanctions that would freeze relations between the world’s two largest economies and a collapse in Taiwan’s semiconductor production which is crucial to global production of everything from smartphones to cars.
Brazil will hold elections in October – against the backdrop of disruptions from the pandemic and an economy still stagnating. A lot can go wrong, although the victory of a candidate who promises stricter control of public spending may bring some relief to reality.
In Turkey, the opposition is pushing to push the 2023 elections into next year amid a currency slide largely attributed to President Recep Tayyip Erdogan’s unconventional economic policies.
What could happen in 2022?
Not all risks are negative. US budget policy, for example, may remain more expansionary than seems likely now – pulling the economy off the fiscal cliff and boosting growth.
Globally, families have trillions of dollars in surplus savings, thanks to pandemic stimulus and forced thrift during lockdown. If this is spent faster than expected, growth will accelerate.
In China, investments in green energy and affordable housing, already programmed in the country’s 14th Five-Year Plan, can increase investment. The new Asian trade deal, which includes 2.3 billion people and 30% of global GDP, could boost exports.
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