Talal Abu-Ghazaleh
As we all enter the new year, we remain overshadowed with the aftermath of the pandemic in 2020 and the somewhat haphazard approach to recovery that followed in 2021 to rebuild economies and adjust to the new normal. I warned at the beginning of the pandemic that this virus may stay with us for at least the next five years. As we entered the second virus year, nations do seem to adjust to this reality, although with cautious optimism as international experts predict long lasting, if not permanent virus effects.
On reflection, I am quite encouraged that the recent omicron variant has not resulted in a global relapse of the restrictive measures that severely stunted economic growth and crippled human prosperity. I can however, foresee that we will be tainted by COVID in this new normal in every sphere of activity for the foreseeable future. This means we must learn to live with this new virus and pragmatically plan for a sustainable future in all spheres of our lives, rather than resort once more to paralyzing lockdowns and isolation. The ability of nations to deal with newer variants will continue to be key for their economic prosperity this year, as so many political decisions now hinge on this single factor which seems to be shaping so much of our present and future lives and activities.
Moving forward into 2022, I can see that efforts will be primarily focused around enhancing economic growth, combatting climate change, as well as continuing the fight against this virus. With the dust somewhat settling and the limited return of supply chains, I see good signs of economic growth this year which is a good indication that we are back on track through a year of uncertainty that has incapacitated many. This is backed by many, including the Centre for Economics and Business Research (CEBR) in the UK that projects a promising growth of 4% globally.
With ongoing issues with global supply chains, limited availability of labor and a sudden raft of spending as people came out of lockdowns, inflationary pressures on economies have gone up and are likely to increase this year, with possible threats of stagflation on the horizon as wages remain the same while the cost of living increases. This remains more of a threat to western nations with inflation now reaching 6.4% in the USA and 4.9 % in the EU. Interestingly, eastern nations are faring better, with China recording an inflation rate of 1.07% and its neighbor Japan at -0.17%.
With all this slowly happening, its seems that emerging economies will be worst hit with their currencies depreciating and as they struggle to pay foreign debt as interest rates rise in foreign countries, particularly as the dollar appreciates and as inflation increases.
Taking into consideration the various drivers of economic prosperity in 2022, I expect a generally positive outlook despite the numerous challenges we are all facing. The CEBR has also reported that global output should surpass US$100 trillion in 2022 for the first time ever, despite what the world has been going through. The post pandemic growth that started in 2021 should continue in developed nations, with developed countries still facing a challenging time as potentially tighter financial conditions take hold.
What is also encouraging is the improved immunity among communities after mass vaccination programs which is bringing down serious infections rates and encouraging governments towards more lenient policies than was previously the case. This gives hope for 2022, as governments that had suffered badly from restrictive lockdowns and do not want a repeat of the same, are now generally increasing their spending and investment as well as working to improve vaccination rates in their respective countries.
Also, despite inflationary pressures on the USA, consumer demand there remains bullish with industrial output rising, and with unemployment rates currently at 4% - set to fall below 3.5% by the end of 2022. These are all positive indicators with respect to the world largest economy, with predicted economic growth rates rising above pre pandemic levels.
While I am tempted to be on the side of an optimistic 2022, there is still a lot of uncertainty surrounding the pandemic, inflation rates and underlying issues with supply chains that still need to be addressed.