Over the next 12 months, global economic expansion will accelerate, inflationary pressures will ease and central banks will gradually tighten their monetary policy. So say Bill Street and Daniele Antonucci, Chief Investment Officer and Chief Economist, respectively, of Quintet Private Bank in a 2022 outlook.
1. Beyond the peak
The momentum generated by the reopenings has passed, delayed demand has been made up and stimulus measures are gradually being phased out. This means that cyclical acceleration is no longer the main driver of the global economy. “Globally, we are past the peak of growth, just as we will eventually put the Covid-19 crisis behind us,” Street said. “Global companies best positioned to thrive as supply chains recover and global trade picks up.”
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2. The low point behind us
The inflationary pressures created by the pandemic unbalancing supply and demand are proving more persistent than many expected, Quintet said. Nevertheless, it is expected to decrease in 2022. In the meantime, economies are learning to live with less support measures and bond yields will soon rise slowly. “Government debt has risen to extremes and central banks must ensure that borrowing remains affordable,” explains Antonucci. “The Bank of England and the US Federal Reserve will raise interest rates ahead of the European Central Bank, so we expect a stronger British pound and a stronger US dollar, but a weaker euro. In addition, China may devalue its currency to improve its international competitiveness.”
3. The Promise from the East
China is in the midst of a structural transition, moving from an export-oriented model to one based on domestic demand, from investment to consumer spending, and from manufacturing to services. To make these changes possible, the country with the largest population worldwide – and in the future the world’s largest economy – will need to set up the corresponding institutional and regulatory infrastructure. In addition to betting on these long-term developments, China, which will reach the highest greenhouse gas emissions in its history by the end of this decade, has plans to reach net zero CO2 emissions by 2060. Street: “We expect China’s ongoing structural transition to boost the services sector, strategic technology sector and advanced manufacturing. The latter two will also receive support from the currency decline.”
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4. East, West, Home, Best
While previous dream scenarios for a better rebuild (build back better) have scaled down, global spending on infrastructure will rise in 2022. Policymakers recognize that fatal climate change is on the way and will align these kinds of investments with sustainability principles. This is likely to have a knock-on effect on parts of the real estate sector, and on sectors such as logistics and storage. “Long-term investments in infrastructure, such as roads, bridges and railways, as well as in areas such as health care and social services are now a structural macroeconomic trend. Public spending will increase and, in addition to significant private investment, will boost overall growth. Companies in sectors more broadly related to infrastructure can benefit from this global trend. Companies that are also able to enhance the green benefits of a project can come out as big winners.”
5. A world full of innovation
As we slowly move past the pandemic, advancing technological developments will not only boost productivity, they will also disrupt entire economic sectors. The massive expenditure on research and development is continuously driving improvements in automation, digitization, artificial intelligence, e-commerce and remote working. At the same time, large-scale capital investment – particularly in intellectual property, sustainability and infrastructure – is creating more new jobs and overall growth. “In 2020, Covid-19 caused the sharpest decline in productivity in history,” Street said. “Despite the short-term uncertainty, the long-term impact of the pandemic is a structural shift: long-term public and private investment in innovations is changing the way we produce and consume our goods and services, the way we work and live, and the way we on which we determine the ‘value’ of a company. In this new world, we determine the value of companies not only on the basis of their physical production, but also on the basis of intangible factors: ideas and a network of relationships that turn innovations into reality.”
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