“The easy part is over”: Uncertainty is imminent after the Covid rebound in the world economy

Forecasters warned that the rebound of the world economy from the historical recession caused by the Covid-19 crisis is better than many economists expected in 2021, but it will face a more difficult path in the coming year.

They said that progress will depend on the virulence of the pandemic, how easy it is to curb inflation, and the degree to which economic losses are spread across countries and industries, and warned that as governments and central banks seek to take measures, currencies and The risk of fiscal policy errors is rising. Response.

“The easy part of this uneven global economic recovery seems to be over,” said Daan Struyven, senior global economist at Goldman Sachs.

HSBC chief economist Janet Henry said that the result is unlikely to be a “Goldilocks” scenario-neither too hot nor too cold.

Most economists believe that the strong recovery in most countries and the background of high inflation will make it difficult to balance supply and demand.

Capital Economics Senior Global Economist Simon McAdam said that although the headline inflation rate will definitely fall, due to the tight labor market, especially in the United States, “product shortages and high transportation costs may continue to have potential pressure on prices.” In most countries.

Economists at Nomura Securities believe that the monetary authorities will control inflation, but this will come at a price. They warned: “By the end of 2022, we will see a very different background, where the risk of stagnation is greater than stagflation.”

The OECD predicts that global output growth will slow from 5.6% in 2021 to 4.5% this year, and the inflation rate will rise from 3.5% to 4.2%, but the peak will occur in the first few months of this year.

Economists agree that the main uncertainty about the outlook for the next year stems from what happened in the past 12 months. The better-than-expected recovery and the shift in spending patterns from services to commodities have raised prices and indicated that consumers’ willingness to buy exceeds the company’s supply capacity.

Henry said the coronavirus vaccine quickly eased restrictions, and policy stimulus spurred consumer spending, enabling the world to be “better than expected a year ago.”

What happens in 2022 will depend on three interrelated forces.

Virus

The severity of the pandemic is important to the willingness of people and companies to consume, as well as government restrictions on liquidity, and these restrictions are tightening again throughout Europe.

Wells Fargo Chief Economist Jay H. Bryson said: “The global economy continues to be hit by the ups and downs of the pandemic.” Although households, companies, and countries have become better at adapting to the coronavirus wave, but The latest variant of Omicron shows that it still has the ability to damage consumer and business confidence and economic activity.

Tamara Basic Vasiljev, senior economist at Oxford Economics, points out that Omicron has undermined global consumer confidence in the past few weeks. However, since market sentiment is still at a relatively high level and family financial conditions are strong, she does not expect the impact of global economic activities to be very large.

“The global economy will manage to navigate the turbulent waters brought about by the Omicron variant,” she said. The biggest uncertainty is whether there will be further waves.

inflation

The second largest uncertainty stems from the imbalance between global supply and demand, which has led to inflation in 2021.

Economists expect overall interest rates to fall-partly because of the statistical impact of last year’s high interest rates on annual calculations, and oil and energy prices are not expected to rise further.

The question is whether price pressures will be sufficiently eased so that the central bank avoids taking tough actions to reduce inflation, which may cause the recovery to stall.

“Over time, [supply] Shortages should be eased, and their inflationary impact should also subside, although there will be a certain lag,” said McAdam of Capital Economics. However, he is concerned that the US labor market is overheating and the Fed may make mistakes due to over-cautiousness.

“We doubt whether the scale of tightening implied by the Fed is sufficient to bring down the core inflation rate to 2%,” he added.

Flaky damage

The third major problem of the global economy in 2022 stems from the difference in the ability of countries and industries to recover from the crisis.

According to research by Goldman Sachs, Spain, Thailand, and Indonesia are the furthest behind the expected path of their economies due to the pandemic, while Turkey, Taiwan, and China have the largest lead.

Output in Spain, Thailand, Indonesia, and the United Kingdom remains weak. Real GDP (third quarter of 2021, forecast) Percentage change from the fourth quarter of 2019 and percentage change based on the 2017-19 average growth rate G2071_21X

Struyven said that a large part of this is due to the extent to which countries are exposed to sectors that are affected by or benefit from changes in demand; for example, the manufacturing industry has very high demand, while regions that rely on travel and tourism have suffered tremendous damage.

Struyven said: “In many economies, services that are still particularly sluggish in spending are usually related to high virus risks, such as spectator events and international travel, or to office work, such as ground transportation or dry cleaners.”

For countries that specialize in providing these services, the benefits will depend on “more significant medical improvements” in the fight against the pandemic.

Due to these fundamental uncertainties, the path of monetary and fiscal policy may lead to further inflationary pressures while providing too much stimulus, or stagnating if the recovery is not sufficiently supported.

Henry of HSBC said, “Things are far from normal.”

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