By 2022, economies – both the great powers and the emerging ones – are expected to turn towards a true growth path after the statistical rebound left by the second year of the pandemic.
According to Bloomberg Economics, the baseline scenario is a solid recovery with cooling prices and distancing from emergency monetary policy scenarios; However, they emphasize that factors such as the omicron variant of COVID-19, as well as inflation in U.S and Fed policies, the fall of Evergrande in China and the rush of emerging markets may put the predictions made at risk.
1 | The latent threat of the omicron
The omicron variant It has been listed as the most contagious of the coronavirus strains, although it is less deadly. This last characteristic would help to return to “something similar” to the pre-pandemic normality, for which more money would be spent on services.
It is worth remembering that the confinement measures to prevent infections forced people to stop going to gyms and restaurants; In this regard, Bloomberg Economics predicts that a rebalancing of spending could boost world growth to 5.1%.
They even project that with a three-month return to last year’s stricter restrictions, it could grow in 2022 at a slow rate of 4.2%.
They also warn that a more contagious and deadly variant would drag economies down because demand would weaken and there would be global supply problems.
2 | Inflation in the United States
At the beginning of this year, it was expected that the United States would close the second year of the pandemic with an inflation of 2%; however, it currently stands at 7%, reaching the highest rate recorded in the last 39 years.
Even the Federal Reserve System (Fed, translated from English) recognized that the inflationary phenomenon is not transitory as they affirmed months ago.
The omicron variant is just one potential cause that would affect travel and drag down oil prices. Among the other factors behind the rise are the tensions between Russia and Ukraine, which would have an impact on the increase in gas prices, added to climate change and its “disturbing” phenomena, which would continue to raise food prices. This combined shock could bring a stagflationary shock that leaves the Fed and other central banks with no easy answers.
3 | Impact after Fed decisions
With the increase in global inflation, the Fed announced that it will reduce the purchase of assets and will increase interest rates in the coming years after reducing them to almost zero with the onset of the pandemic. For 2022 they scheduled three hikes, which, if they reached a rate of 2.5% to raise treasury bonds and widen credit spreads, would generate a recession at the beginning of 2023, according to Bloomberg.
This would have repercussions – causing a “hard landing” – in emerging markets due to the strong boost to the dollar and the eventual capital flight.
However, the specialized media details that Peru has an average of 10 points in the vulnerability indices, ranking with a better projection than neighboring countries such as Mexico, Chile, Colombia, Brazil and Argentina (see infographic). Only Saudi Arabia, Russia, Taiwan, Indonesia, South Korea, Thailand and India are the ones that surpass our country.
4 | The new reality of fiscal policy
With the arrival of the health crisis, governments redoubled their efforts to intensify spending in support of companies and workers. Swiss banking UBS forecasts that public spending in 2022 will amount to 2.5% of PBI mundial, a figure five times higher than the austerity measures that slowed the recovery after the 2008 crisis.
In the case of the United States, for the Brookings Institution, fiscal policy stopped driving the economy to slow it down in the second quarter of the current year. Joe Biden’s administration would limit the drag on the economy if some of his investment plans are approved in Congress. Finally, despite the risk forecasts, Bloomberg highlights that worldwide households have liquidity thanks to the stimulus and fiscal restraint at the end of the year. Accelerated growth will depend on how it is spent.
5 | Tough situation in the Chinese market
During the third quarter of this year, China’s economy was halted by the accumulated weight of the huge debt of Evergrande, pandemic restrictions and energy shortages, causing annualized growth to reach 0.8%, a figure very far from the usual 6% in this market.
Beijing’s zero covid plan in front of the omicron may translate into weak demand and limited financing for property construction, which encompasses around 25% of the Asian giant’s economy.
In that sense, Bloomberg Economics forecasts that the Chinese economy will grow 5.7% by 2022, which would mean a slowdown to 3% that would affect the world since it would leave the exporters of raw materials – Peru among the list of countries of influence – without buyers and possibly derail the plans of the Fed.
External winds in Peru
Juan Carlos Odar, director of Phase Consultores
The restrictions applied by Peru against the omicron are not as severe as in Europe, which is why it is expected that their impact will be less in our development by 2022.
Regarding global inflation, the additional risk lies in the effect that the United States may have on the exchange rate of abandoning its implemented stimuli, so that inflationary pressure could be still high next year.
We are going to be in the upper part of the target range, but the balance of risks suggests that the new year will have inflation above 3% but most likely less than this year.
With what is happening in China, if they reduced their demand or its growth rate, this would influence the moderation in the prices of exported metals. This risk is not ruled out and would complicate the picture with what happens in the United States. The marginal rise in the price of metals for 2022 will depend on the Chinese economic growth scenario and how it solves problems such as those of Evergrande and the large construction companies.
The data
Weight. According to the Minister of Economy and Finance, Pedro Francke, closing 2021 as one of the strongest economies among emerging countries allows for a low exposure to capital flight. The solid macroeconomic fundamentals of the last 20 years, the low public debt and fiscal deficit are strengths that made it possible to face the pandemic, he added.
Risk forecasts in emerging markets
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Kingston is an accomplished author and journalist, known for his in-depth and engaging writing on sports. He currently works as a writer at 247 News Agency, where he has established himself as a respected voice in the sports industry.
