The main things to monitor in the global economy in 2022
Will the global economy rebound in 2022 as a result of the pandemic? As the holiday season draws to a close, it is the major topic on everyone's mind.
One complicating element is that the majority of the most recent big estimates were released in the weeks leading up to the omicron variant's global spread. The impression at the time was that recovery was on the way, with the IMF forecasting 4.9 percent growth in 2022 and the OECD forecasting 4.5 percent. These figures are lower than the predicted worldwide growth of 5% to 6% in 2021, but they indicate the inevitable return from the pandemic lows of 2020.
The Issue of Inflation
Inflation is another major uncertainty. The revival of global economic activity and bottlenecks in the global supply chain resulted in a rapid and abrupt rise in inflation in 2021. There has been significant discussion about whether this inflation is transitory, and central banks have been under pressure to keep it from spiralling out of control.
The European Central Bank, the Federal Reserve, and the Bank of Japan have all refused to raise interest rates from their current low levels. In December, the Bank of England followed the IMF's guidance and hiked interest rates from 0.1 percent to 0.25 percent. This is insufficient to contain inflation or do any good other than raise the cost of borrowing for businesses and increasing mortgage payments for homeowners. Markets, on the other hand, believe that additional UK rate hikes will follow, as well as that the Fed will begin hiking rates in the spring.
What happens to quantitative easing is a more pressing matter in terms of inflation (QE). This is the strategy of expanding the money supply, which has resulted in the main central banks purchasing around US$25 trillion in government bonds and other financial assets in recent years, including approximately US$9 trillion as a result of COVID.
Both the Fed and the ECB are still doing quantitative easing and adding assets to their balance sheets on a monthly basis. The Fed is presently reducing the pace of these purchases in order to finish them in March, after recently announcing that the expiration date will be moved forward from June. The ECB has also stated that it will reduce its quantitative easing programme, but that it will continue for the time being.