The global economy in 2022 - Transit to new normal but risk of delays
02 December 2021
Heading into 2022, inflation and supply chain concerns are driving the global economy. We explore what the coming year has in store for us.
6 min read
Will global economic growth slow next year? Will Covid-19 become endemic? Will inflation prove to be transitory? What is the future of work? These are just some of the questions covered in our latest economic webinar.
For the discussion, Investec Chief Economist Philip Shaw was joined by The Economist's Tom Standage, Editor of the publication’s 'The World Ahead' series. Tom shared his top 10 predictions of what will shape the global economy in 2022. Philip also presented the key takeouts from his team's latest report: The Outlook for 2022: Transit to the new normal but risk of delays.
It's not hyperbole to say that Taiwan Semiconductor Manufacturing Company's atom-thin silicon chips power much of the world's technology. When the company couldn't keep up with resurgent consumer demand in 2021, all things digital suddenly became a lot more expensive and global supply chains across almost every industry were disrupted.
That is just one example of the increasingly tangled web of global supply chains - one of the main themes of the discussion between Investec Chief Economist Philip Shaw and Tom Standage, Deputy Editor of The Economist, addressing the major global trends likely to shape the world in 2022.
Read on for a summary of their conversation - your essential primer for the year ahead.
Democracy is the worst form of government – except for all the others. That Churchill maxim will be rigorously tested in 2022.
The US mid-term elections, very likely to be fractious, will stand juxtaposed against China's Party Congress, where Xi Jinping will reassume power by diktat of a handful of party officials.
The Asian powerhouse may shake its collective head at the inability of American politicians to get things done, while the juggernaut of the West will chastise the unsustainable character of autocratic regimes that suppress individual freedoms, according to Standage.
"People are worried not just about whether democracy works or not, or whether its survival is under threat. It's about showing that democracy is superior," said Standage during his opening remarks.
As the pandemic headlines subside, expect the rivalry between the US and China to reignite, fanned by disparate philosophies on how to run a country and what sort of society we should aspire to live in.
Vaccines are lowering Covid-19-related deaths and hospitalisations. In addition, 2022 will see the arrival of more effective second-generation jabs, as well as pill-form antiviral treatments from Merck and Pfizer.
In many countries, Covid-19 is on the way to becoming a non-life-threatening treatable disease. But the emergence of the Omicron variant is both a risk and a cautionary tale.
With lower vaccination rates and scarce healthcare, poorer countries may serve as hotbeds for mutations and new variants, even though they can ill afford it.
That outcome wouldn't be novel.
"Think of a disease like malaria, a minor inconvenience to people from the rich world. Maybe they pick it up on holiday, they take a few pills, and it goes away. Meanwhile, the disease kills millions of people every year in poorer countries. That's a reflection of inequalities in income and healthcare systems," cautioned Standage.
Few factors have the potential to shape 2022 like the path of global inflation. The prevailing view is that the current uptick in prices is due largely to a surge of pent-up demand as economies rebound combined with supply shortages. But if inflation proves more permanent than transitory, interest rates hikes will follow, potentially throwing markets into turmoil.
There are, however, early signs that global supply chains have found some grease. The lead times for semiconductors look to have peaked, as do shipping costs. But energy prices remain elevated.
Perhaps the biggest threat to the transitory hypothesis is the legitimacy of the "Great Resignation". If labour market shortages persist because people have left the workforce for good, then higher wages seem inevitable, with knock-on price effects across the board.
Investec's Philip Shaw acknowledged the risk, but tempered it: "Our working assumption is that labour market dynamics are not going through a permanent shift. We saw participation rates fall in the US during the global financial crisis, which was followed by a slow but steady recovery."
"Bosses generally have nicer offices and they like being there because they get to tell everyone what to. Workers are less keen on the idea, so there's a disparity there," quipped Standage, framing his view on the future of work.
The hybrid working model seems to be the consensus for 2022, but there's almost no alignment on what that looks like. That uncertainty creates the potential for workplaces to become more inequitable than they were pre-pandemic.
At the heart of that threat is visibility in the office. Not everyone will choose to work from home, but those who do may be marginalised through their physical absence. More worryingly, it's those who previously faced prejudice – single working mothers, for example – who are keenest to stay home.
If not designed purposefully and with care, hybrid working models could undo progress on closing gender pay gaps, inclusion and diversity.
There are two things that US Democrats and Republicans agree on, according to Standage. Firstly, US tech companies should have their substantial wings clipped. Secondly, China is wrong on almost everything.
The sweeping regulations made by the Chinese government on their tech industry look to have both altruistic and ulterior motives. Many parents with screen-addicted kids would agree that restricting gaming platforms is not an entirely bad idea, as is making online learning content more affordable, even if halting initial public offerings and banning celebrities from social media platforms seems a ham-fisted way to go about it.
If the president gets his way, Chinese tech firms will spend more time developing artificial intelligence, quantum computing and robotics than on consumer tech and online shopping. Can their hands be forced? Standage has his doubts.
"If you look at the numbers, you can see start-up funding in the US has shot up, while in China, it's trending down. We think the regulation is likely to stifle economic dynamism, hamper innovation, and reduce entrepreneurism."
Either way, US politicians will be keen to show that they, too, have the muscle to reign in their swashbuckling tech chief executive officers, particularly as the negative aspects of ubiquitous platforms like Facebook draw louder criticism.
As cryptocurrencies edge towards mainstream adoption, the decentralisation of money is becoming a real threat to central banks' monopoly on the money supply. Therefore, we can expect to see more central banks issuing digital currencies to mitigate this risk.
"The supporters of radical new technologies always say it's going to change everything. Then it gets domesticated, and some compromise is found between the old way and new way of doing things," explained Standage.
In the same breath, he noted that domestication isn't all bad. "Napster was an illegal jukebox in the sky. Now we have Spotify."
The challenges of the transition to clean energy were laid bare when decommissioned coal-fired power stations were rebooted in the same month the COP26 conference was held.
In ragged pursuit of net-zero, many countries will take their foot off the fossil fuel pedal prematurely, causing climate-led energy crunches.
Standage is clear on what must be done to avert these crises of power.
"We need to be spending about $5 trillion a year globally on new energy infrastructure in order to reach net-zero by 2050, and we're only spending about half as much. The answer to both of these problems, the short-term energy crunches and the long-term problem of climate change, is to invest more money in energy infrastructure."
Even if the required investment happens, collaboration between China and the US is necessary to stem the flow of greenhouse gases. That looks unlikely given the potential for Sino-US tension in 2022.
The 11 September 2001 attacks and the global financial crisis permanently reduced the number of business travellers. The pandemic and its gaggle of videoconferencing offspring will likely do the same to an even greater extent.
That's good for the planet but bad for tourists. Standage explained:
"Tourists have historically had their flights and hotel stays subsidised by high-spending business travellers. So we could be witnessing a reshaping of tourism economics."
Leisure travel has proven resilient through previous crises. But the industry will need to innovate to make sure it doesn't become the exclusive preserve of the ultra-wealthy.
On the topic of the ultra-wealthy, we can expect 2022 to be the first year in which paying passengers exceed the number of government employees visiting space. Space tourism, it seems, isn't suffering the strictures of its earth-bound cousin.
That is not to say that governments have lost interest in space.
"In addition to the terrific rivalry between private space companies, we've got the more traditional superpower competition. China wants to finish its space station next year, which will be permanently crewed. India is sending another lunar probe to the moon after the last one crashed. And we've also got this race to make films in space, which, to Tom Cruise's dismay, the Russians look likely to win."
Whoever's floating around up there towards the back end of 2022 should keep an eye peeled for the space probe that NASA plans to crash into an asteroid to see how we would be able to stop a sizeable space rock from hitting the Earth.
Being a sponsor of a major sporting event is fraught with complexity. Companies spend vast sums of money so that consumers associate their brands with the best athletes in the world. But they also risk being associated with host countries that may not share their values.
Are sponsors of the coming Winter Olympics unfazed by China's human rights record? Do brands associated with the Qatar 2022 Football World Cup care about the country's treatment of foreign labourers and its criminalisation of homosexuality?
"We aren't going to see national teams actually pulling out of these contests. I think we're just going to see a lot of protests and noise around the edge, particularly directed at the sponsors," said Standage.
One thing's for sure: anyone looking forward to a nice quiet year after the turbulence of the decade so far should recalibrate their expectations.
This article is for general information purposes only and should not be used or relied upon as professional advice. It is advisable to contact a professional advisor if you need financial advice.