The global economy after COVID-19. What investors can expect.
How will the financial markets perform in 2022? The good news for investors, first of all: The economy will keep growing. But the global economy will also face some major challenges. Read the economic forecast in Credit Suisse’s 2022 Investment Outlook.
The pandemic is not over, but some things are back to normal thanks to vaccinations. The upward trend is likely to continue in 2022. Dynamic economic growth of 4.3% has been forecast. It will be driven by robust demand, favorable fiscal and monetary policies, and additional re-opening measures.
Inflation likely to reach its pinnacle
The rise in inflation was a key topic in 2021 and will continue to be of importance. For 2022, the forecast is for global inflation to hover at an increased level of 3.7%. The real question is how central banks will respond. The experts at Credit Suisse believe that many investors will purchase fewer securities at first. However, if inflation drops versus 2021, interest rates are likely to remain as is.
Real interest rates likely to increase in 2022
The combination of slightly lower inflation rates, reduced asset purchases, and rate hikes in selected countries means that real interest rates could rise in 2022. Thus, we can expect a reduction in financial market returns, particularly on the equity markets, while volatility rises. Governments and households will then find it more difficult to pay back their debts.
Service sector sees a recovery
Global industrial production is likely to keep growing while delivery bottlenecks will be less of an issue than they were in 2021. The service sector has also benefited greatly from the economic recovery. While COVID restrictions initially kept tourism and restaurants from a full recovery, further re-opening measures in the service sector for 2022 will help them outpace the economy as a whole in terms of growth.
New trends shaping the world economy
The experts at Credit Suisse believe that the main economic changes in the years ahead will probably be unrelated to the pandemic. They include: demographic change, cost-intensive problems, new and disruptive technologies, and more state capitalism.
The working population has stagnated in most parts of the world. This could lead to a shortage of labor, thereby resulting in increasing wage growth. For this reason, companies are likely to invest more in automation.
The political arena will have to manage rising healthcare costs for an aging population, the transition to renewable energies, overdue upgrades to infrastructure, and investments in disruptive technologies. New regulations and taxes, as well as higher income redistribution could mean less stability in the business climate and greater economic volatility.
New technologies, such as quantum computing or blockchain applications, could help solve many problems of our time. However, they will also result in far-reaching changes to the financial sector and undermine traditional business models.
In the last 20 years, industrialized nations have cut many middle-class jobs, while the number of high-wage and low-wage jobs is on the rise. The result: Larger asset and income differences which governments are likely to combat with income redistribution using taxes.
The global economy is undergoing a transformation
The upcoming year 2022 is likely to be one of recovery and transition after the pandemic. In light of new factors, including climate and demographic change as well as new technologies, we are heading for a new world economic order. This provides definite opportunities to investors. After all, the global economy is likely to keep rising in the next decade, even if growth will be more erratic and volatile than in recent times.