Chief Economist Jean-Christophe Caffet's 2022 Outlook
What is your outlook for the global economy? Have you forecast different scenarios depending on the danger of the new Omicrom variant?
The emergence of new coronavirus variants, beyond Omicron, is naturally the main risk for 2022. However, we feel that including this possibility in our forecasts is relatively futile, or illusory, as the impact on economic activity and society as a whole depends on a number of variables that are impossible to predict and quantify: how dangerous (lethality)? How contagious? What response from the public authorities? How will society react? The unknowns are so numerous that it would be necessary to construct an incalculable number of "alternative" scenarios. We prefer to build and quantify a scenario that we qualify today as central, and to remain attentive so that we can reorient our views if current events so require – according to what we know, rather than what we can imagine today.
All extreme risks aside, 2022 looks like a year of transition or normalisation, after two years of very high volatility at all levels: economic activity, consumer prices, asset prices, agents' expectations, etc.
In this scenario, we expect global economic growth to slow significantly, from just over +5.5% for 2021, according to our latest estimates, to nearly +4% next year. The balance of risks is nevertheless tilted clearly to the downside.
Should we be concerned about China’s economic slowdown?
Not least of these risks is the Chinese economic slowdown. The Chinese economy now accounts for about one-sixth of global GDP, and is no longer just the "workshop of the world" but also a major driver of global demand. The slowdown in household consumption and business investment observed over several quarters, in a context of high indebtedness and a crisis in the real estate sector (which represents, in a broad sense, more than a quarter of Chinese GDP) poses a risk that the Chinese monetary and fiscal authorities are currently trying to contain, but which remains difficult to assess. This phenomenon is therefore worrying, as much for China as for the rest of the world.
Is the inflation we are currently experiencing, whatever its source (raw materials, multiple shortages, carbon prices), transitory?
It is fundamental to know where inflation comes from in order to know whether it is transitory or sustainable. In this respect, there is an important dichotomy between continental Europe and the United States. In continental Europe, inflation comes mainly from energy prices (oil products, gas, electricity) and disruptions in global value chains (increased supply times, shortages, etc.). In the US, these initial effects, which are also at work, seem to have spread more broadly throughout the production process, particularly to wages, in a context otherwise marked by labour shortages. In short, inflation still has the characteristics of a transitory (albeit persistent) phenomenon in the eurozone, whereas it is in the process of taking hold in the US. This explains the asymmetry in the two region’s monetary policies.
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