Business outlook for the global economy in 2022

For many global  businesses 2022 shall be deemed the year to recoup  losses incurred after the COVID-19 Pandemic crisis. According to the Organization for Economic Cooperation and Development (OECD), the world GDP in the 3^rd quarter of 2021 exceeded its value prior to the outbreak of the coronavirus pandemic. While it was at the level of 100 points at the end of 2019, it reached the level of 101.6 points at the end of September 2021 and it is expected that it will likely be close to the limit of 107.2 points by the end of 2022.[1]

Pursuant to the International Monetary Fund (IMF), global growth will be close to 5% compared with 6.1% in 2021. However, Capital Economics predicts a growth of 4.0%.[2]

A high number of risk factors can cause  strongly diversified forecasts for key global businesses. The  Bloomberg agency collected data on the predicted GDP growth worldwide in 2022 which is as follows: [3]

• USA – from 2.1% up to 5%;
• China – from 3% up to 6.6%;
• EURO- Zone – from 3.2% up to 5%;
• United Kingdom – from 3.5% up to 5.1%;
• Japan – from 1.3% up to 4.3%;
• Brazil – from (-) 0,5% up to 2.3%.

The economic growth rate in the USA will mostly depend on increased public spending.  However, the problems that president Joe Biden’s administration is facing in the Senate with fiscal measures  may indicate that the stimulus package will slow down. IFM predicts that GDP will increase in the USA by 5.2% and in the case of China IFM estimated that their GDP will raise by 8.5% and this will be determined by the scale of fiscal stimulus in upcoming quarters of 2022 as well as by trends in the construction sector. The wave of bankruptcy cases in this field of the economy may shake up the Chinese financial market and be perceptible worldwide however the economic growth pace in Brazil will be in the region of 1.5%.[4]

The coronavirus pandemic is not the only factor that might slow down the pace of economic growth in the world. A high inflation[5] will for a long period of time still decrease  household purchasing power in many countries.

According to many scenarios this negative trend will cease in the second part of  2022 resulting from the base effect and from a better supply situation in the raw materials markets. The market consensus projection is that  inflation should fall  gradually due to a slower demand and due to elimination of supply obstacles. Pursuant to the predictions of Ch. Dembik[6], difficulties in supply caused by Chinese policy “Covid-zero” and higher energy prices based on longstanding underinvestment of the energy infrastructure might be more sustainable than predicted. This will be a major challenge for the US Federal Reserve and for the world central banks and the change of the supply chain will have a decisive impact on  inflation. Therefore the key issue is to ensure its continuity and the sooner that happens, there will be fewer  complications of higher raw material prices.

The analysts of Euler Hermes assume that supply chain disturbances may remain at a higher level up to the second part of 2022. however,  world trade shall increase in size. They expect that  trade will raise in terms of volume by 5.4% in 2022 and by 4.0% in 2023 and  will gradually recover to the levels prior to the outbreak of the COVID-19 Pandemic. F. Huang[7] is of the opinion that this may be at the costs of increased global imbalance. The US could face  a significant trade deficit (approx. US $1.3 billion in the years 2022- 2023) accompanied by a high trade surplus in China (approx. US $760 billion). In contrast, The Euro–Zone will reach a higher than average surplus within the trade totaling approx. US $330 billion.

The Covid-19 Pandemic has also impacted on the market of raw materials in many regions across the world. The prediction for crude oil, industrial metals, gold and agricultural materials remains so far conservative. The uncertainties on the market of crude oil cause differentiated forecasts for their prices. According to the World Bank the prices of crude oil in 2022 will still  raise and reach USD74 per oil barrel and drop to USD 63 per oil barrel in 2023. The Bank accepts that  global demand for this raw product will in 2022 reach  the same level as prior to the outbreak of the Covid-19 Pandemic. The effect would be the renewal of flight connections. Furthermore, in 2022 the production of crude oil should significantly increase in size (approximately 6 million barrels per day) due to the lifting of production restrictions for OPEC countries and commencement of new oil fields in many other countries. The Bank also predicts that  oil production in the USA  will increase by 1 million oil barrels per day. An increase in crude oil production is expected in Canada and Brazil. Pursuant to the forecasts of specialists from the American financial holding JP Morgan, a barrel of crude oil may cost USD 150 because of the limitation of production capacity of OPEC exporters. According to an expert group headed by Mr. Ch. Malek. OPEC is not resistant to consequences resulting from insufficient investments into  raw material production. Within trends for ESG (environmental, social and corporate governance) many investments funds sell their shares in oil companies and put pressure on them to  introduce  measures leading to zero emissions.[8]

Gas prices should correspond to the crude oil prices provided that that there will not be more disruption caused by military actions from Russia. Coal prices may be supported by large demand and be at a record level  in 2022 in accordance with the International Energy Agency (IEA).

However, problems associated with the energy market transformation in Europe such as turbulence in the sector of the CO₂ emission permits may also influence electricity prices.[9]

The predictions of analysts for copper and other precious metals are currently cautious. The scenarios are predominantly showing a decreased in demand in this sphere. Median values  collected by the  Bloomberg agency indicate that the copper price shall amount to USD 9500 for 1 ton by the end of 2022 and thus it may be close to the price from the half of December 2021. Individual forecasts differ between  USD 8625 and USD 10 000. In turn, forecasts for aluminum amount to USD 2500 for 1 ton at the end 2022 while this price was at the level of USD 2645 in the half of December 2021. Most forecasts fluctuate in the region between USD 2000 and 2700.[10]

Any forecast for prices of agricultural raw materials is difficult due to weather conditions: e.g.  cold winter in Europe, floods in the USA, drought in Russia and swine fever in China and these factors may influence the demand for agricultural raw materials and make any predictions conservative. The price for  a bushel (27.2 kg)  of wheat amounted to USD 7.7 in the half of December 2021 on the American markets and the predicted prices for the last quarter of 2022 oscillate between USD 6.1 and USD 7.1 and for coffee between USD 1500 and  USD 1700 for 1 ton at the end of 2022. In December 2022 these prices exceeded USD 2400.[11]

In 2022 the environment for the global stock market may be less favorable than in 2021. On the one hand a high level of vaccinated persons in developed countries, better preparation for hospitalization and working on anti-Covid 19  medicines justify the encouraging forecasts for the future minimizing the risks of hard lockdowns in the following months of 2022. On the other hand the OMICRON variant of Covid-19 is spreading very fast and as a consequence some countries have again decided to introduce tighter restrictions. Furthermore, the global growth and growth rate  of financial results of companies should slow down and at the risk of maintaining  inflation at a high level and therefore rising of interest rates by central major banks remain vital. The further development of the COVID-19 Pandemic, inflationary pressure and economic activity rations will have an impact on the decisions of global central banks and these banks will shape the situations on the financial markets.[12]

The values of indexes S&P500 and Stoxx Europe 600 for the end of 2022 imply rather lower but positive returns for both markets indicating the higher potential of European market (+2,8% for S&P500 i +6,6% for Stoxx Europe 600).[13] It should also be stressed that having in mind the annual rates of the aforementioned returns, European stock markets dominated over American markets for the last time in 2015. Analysts of Citi Bank are of the opinion that S&P500 may increase up to 5100 points by the end of 2022 compering with previous forecasts at the level of 4900 points. However, analysts of Credit Suisse do not exclude a growth at 5200 points.[14]

The dynamic of profits generated by  companies in Asia should stabilize at a level between 8% and 10% in 2022 compared to the growth of 43 % in 2021.

The perspective of Chinese companies, despite a significant restatement in 2021 and reduced confidence on stock market, may be better in 2022. This results from the key importance of technology and internet companies for future Chinese development. In turn, profits of South American companies in 2022 could decrease by 9.5% due to economic and political  instability enhanced by the Covid-19 Pandemic, health crisis and increased fiscal pressure. In 2021 they rose by 220%.[15]

[1] See H. Kozieł, Jak szybko świat będzie wychodził z kryzysu?, Rzeczpospolita 03.01.2022.

[2] See above

[3] See above

[4] See above

[5] For the majority of nationals from the European Union (EU), a significant raise of prices was shocking as many of them had not experienced such a situation in their lifetimes. In the entire history of the measurements of the inflation rate HICP (Harmonised Index of Consumer Prices), meaning since 1997, there was not a higher inflation than the current one in most developed European countries. Belgium, Luxembourg and German noted the  Inflation at least at 6%, Holland, Norway and Spain over 5% and  Austria at 4.1 %. A historic growth of prices has been reported for the entire EU (5.2 %) and for the Euros – Zone (4.9%). Outside the EU  prices were going up faster in Turkey where the index of consumer products and services raised by 21.3% in November 2021.  In the USA the inflation HICP amounted to 7.9 % in November 2021 in accordance with EUROSTAT. The main reason for higher inflation in Europe is prices for car fuels, gas and electricity. The prices for liquid fuels increased on average by 56.7% in November 2021 and the peak was reached in Luxemburg (+ 101.8 %), Belgium and Lithuania and the lowest level was reported in Rumania (+ 5.3 %) and in the Czech Republic (+ 6.4). In turn, consumer gas prices rose over 100% in Estonia, Greece and Belgium and also in Denmark. High prices for gas and speculations as to CO₂  were reflected in electricity prices and the prices for electricity increased on average by 15.9% in Europe, mostly in  Norway by 144.4 % and also in Holland by 75%.

[6] Director for microeconomic analyses of  Saxo Bank.

[7] An economist from  Euler Hermes.

[8] Ropa na cenowej huśtawce. Prognozy nie są optymistyczne, Rzeczpospolita 02.12.2021.

[9] H. Kozieł, op. cit.

[10] See above.

[11] See above.

[12] Perspektywy rynkowe na 2022 rok.  Barometr Inwestycyjny, Citigold, Janaury, the 5^th  2022.

[13] Data recalculated with regard to the values of both indexes as of 31.12.2021.

[14] https://strefainwestorow.pl/artykuly/gielda-usa/20220106/sp500-2022; https://biznes.interia.pl/gieldy/aktualnosci/news-gieldy-w-2021-r-wszystko-drozalo-ale-w-2022-r-bessy-nie-bedz,nId,5737298.

[15] Perspektywy rynkowe na 2022 rok, op. cit.