Omicron is a storm in our crystal ball, but we know that whatever Covid throws at us, the global economy can adapt. Here's our full Outlook for 2022: 3 calls for countries, markets and sectors.
It's a storm in our crystal ball. In our base-case scenario, we assume that Omicron will not be a game-changer and rather short-lived, at best motivating some European governments to tighten restrictions; something they'd been considering anyway in the current fourth wave of the pandemic. And even if parts of the world were to go into lockdown, the experience of 18 months of crisis shows economies can adapt. With every single lockdown, the adverse economic impact becomes weaker.
In a best-case scenario, Omicron could even speed up herd immunity, at least if it remains a contagious but very mild variant. Needless to say, we can all imagine how the worst-case scenario would look. Interestingly, major central banks seem to be ignoring this new uncertainty. Fed Chairman Jay Powell just retired the word ‘transitory’ when it comes to inflation, signalling a faster taper and consequently earlier rate hikes. I hope that ‘transitory’ ends up in the same retirement home as ‘holistic’, ‘upstream' and 'downstream’ or ‘multifaceted’. These are words from a central bankers’ dictionary no one really needs.
It was always a bit strange to call inflation ‘transitory’, transiting to where or for what reason? ‘Temporary’ would have been a better choice. With the Fed now fearing longer inflationary pressure and the ECB still being in ‘team transitory’, inflation will remain a big issue in 2022. In our view, inflation will come down but not as quickly as that team expects. It will take until the end of 2022 before inflation again approaches 3% in the US and 2% in the eurozone. We expect the global economy to gain momentum at the latest by the European spring. That means central banks will have very few options other than to taper and to start, or start thinking about hiking rates.
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