The global economy has recovered better from the historic recession caused by the Covid-19 crisis than many economists expected in 2021, but the way forward is more difficult in the coming year, forecasters warned.
Progress will depend on the virulence of the pandemic, the ease with which inflation is brought under control and the dispersion of the economic damage between countries and sectors, they said, warning of a growing risk of errors in policy. monetary and fiscal policy as governments and central banks seek to respond.
“The easy part of this uneven global economic recovery seems over,” said Daan Struyven, senior world economist at Goldman Sachs.
HSBC chief economist Janet Henry said the outcome was unlikely to be a “Goldilocks” scenario – neither too hot nor too cold.
Most economists agree that the backdrop in most countries of a strong recovery combined with high inflation will make it difficult to balance supply and demand.
Simon MacAdam, senior global economist at Capital Economics, said that while headline inflation rates would certainly drop, there would likely be lingering underlying price pressure due to tight labor markets, especially in states. United, and ‘product shortages and high transportation costs. “in most countries.
Nomura economists believe monetary authorities will keep inflation under control, but it will come at a cost. “At the end of 2022, we see a very different context, with stagnation being a greater risk than stagflation,” they warned.
The OECD expects global output growth to moderate from 5.6% in 2021 to 4.5% this year, with inflation dropping from 3.5% to 4.2%, although the peak occurs in the first months of the year.
Economists agree that the main uncertainties about the outlook for the coming year stem from what has happened over the past 12 months. A better-than-expected recovery and a shift in spending from services to goods pushed up prices and showed that consumers ‘willingness to buy was outstripping companies’ supply capacity.
Coronavirus vaccines have allowed restrictions to ease quickly, and stimulus measures have propelled consumer spending, allowing the world to end the year “in a better place than we might have expected a long time ago. an, ”said Henry.
What happens in 2022 will depend on three related forces.
The severity of the pandemic matters both to the willingness of individuals and businesses to spend and to government restrictions on mobility, which are tightening again across Europe.
“The global economy continues to be hit by the ups and downs of the pandemic,” said Jay H Bryson, chief economist at Wells Fargo. Although households, businesses, and countries are adjusting much better to waves of coronavirus, Omicron’s latest variant shows it still has the power to hurt consumer and business confidence and economic activity. .
Tamara Basic Vasiljev, senior economist at Oxford Economics, noted that Omicron had undermined consumer confidence around the world in recent weeks. But with sentiment still at relatively high levels and household finances strong, she doesn’t expect the hit to economic activity to be significant globally.
“The global economy will manage to navigate the rough waters presented by the Omicron variant,” she said. The big uncertainty is whether there will be more waves to come.
The second big uncertainty stems from the imbalance between global supply and demand, which created inflation in 2021.
Economists expect the headline rate to drop, in part because of the statistical effect of last year’s high rates on the annual calculation, and because oil and energy prices are unlikely. increase further.
The question is whether the pressure on prices will moderate enough for central banks to avoid taking strong action to lower inflation, which would risk stalling the recovery.
“Over the year, [supply] the shortages should ease and their inflationary effects should also ease, but with a lag, ”said MacAdam of Capital Economics. However, he fears that the US labor market is overheating and that the Federal Reserve could be wrong by being too cautious.
“We doubt that the scale of the tightening announced by the Fed is sufficient to bring core inflation down to 2%,” he added.
The third major challenge for the global economy in 2022 stems from the differences between countries and industries in their ability to recover from the crisis.
Spain, Thailand and Indonesia are the furthest behind their economies’ expected trajectory due to the pandemic, with Turkey, Taiwan and China being the furthest along, Goldman Sachs research shows.
Much of this, Struyven said, was due to countries’ degree of exposure to sectors that were affected by or benefited from the changes in demand; for example, the manufacturing industry experienced very high demand while places dependent on travel and tourism suffered severe damage.
“Services where spending remains particularly depressed in many economies are typically either associated with a high risk of viruses, such as spectator events and international travel, or related to office work, such as ground transportation or cleaners at home. dry, ”Struyven said.
For countries specializing in these services, the gains would depend on “greater medical improvements” to fight the pandemic.
As a result of these fundamental uncertainties, the stance of monetary and fiscal policy could either lead to further inflationary pressures if too much stimulus is provided, or a dip into stagnation if the recovery is insufficiently sustained.
According to Henry at HSBC, “things are still far from normal”.