After such a frenetic year, I was quite surprised to read what we had predicted a year ago and realise that we had correctly forecast quite a lot of what happened. Our world economy GDP forecast was within 0.2% which is as close to spot on as you can reasonably expect. Our warning about inflation was prescient. But our forecast for UK growth was a bit too strong. And our forecast that travel would roar back was definitely stymied by the delta and omicron variants, though the industry did recover (air revenue passenger kms were up 71.9% in the year to October but still only half their level in October 2019). Even our notoriously inaccurate sporting predictions scored quite a few hits, with Japan coming 3rd in the Olympic medal table, England reaching the finals of the Euros and only losing on penalties (we would definitely have forecast that had it gone to penalties England would – as is traditional – lose) and the Lions getting well beaten in South Africa.
So, encouraged by our relative success in forecasting the past year we will continue to try our luck looking at the year ahead. Here are our Top Ten for 2022:
1) The world starts the year with economies held back by supply shortages and the impact of the omicron variant. Oddly the cooling of growth which this will generate could enhance the sustainability of the recovery. We expect world GDP growth around 4% in 2022.
2) We think UK growth also fell a bit short at the end of 2021 because of supply constraints and omicron. And the New Year will probably start fairly slowly for the same reasons. But as supply issues get resolved and with unspent savings burning holes in people’s pockets, look out for 4% plus growth in the UK also for the year.
3) The biggest issue, both internationally (especially in the US) and in the UK is likely to be inflation. Both the Fed and the Bank of England have indicated a tightening in their stances but we are not convinced that their current expected plans will be sufficient. Look out for inflation reaching over 6% in the UK and over 7% in the US.
4) Although wages will rise both as a result of a higher cost of living and a tight labour market, at best they are unlikely to do much more than keep pace with inflation. So watch out for a cost of living squeeze in the UK especially as price increases outstrip growth in disposable income.
5) With fiscal policy already being tightened around the world (unless President Biden gets a huge expansionary package through Congress which seems unlikely), the bulk of the counter inflationary policy tightening is likely to reflect higher interest rates and the rolling back of quantitative easing. We see both (especially the latter) operating mainly through the asset markets. We have a hunch that the scale of the policy adjustment might not need to be too great because there will be a significant asset market response. Translated into English, this means we are expecting bond, equity and property markets to fall around the world. The amounts will vary from 10% to 25%. And the timing will also vary and some of the impact will fall into 2023.
6) Two elections stand out. The French Presidential election already appears to be affecting Anglo-French relations. If the Centre Right candidate, Valérie Pécresse, gets through to the second round, she should at least give President Macron a fight and might yet win, though a victory is unlikely to change policy much. And the US mid-terms will be important not only because what seems a probable Republican win could limit President Biden’s power to push through policy but because of the signal it might send to the rest of the world. Russia has troops poised on the Ukrainian border, China has indicated that it wants to take back Taiwan and Israel (which tends not to make threats) is widely believed to have plans to attack Iran’s nuclear facilities. There might be a temptation to push ahead early just in case former President Trump comes back in 2024. Any one of these could be seriously destabilising, the combination is frightening.
7) 2021 was the year when environmental concerns went mainstream. Our analysis of the COP26 summit (at which we presented to a packed fringe meeting) was that not only (slightly like a temperance rally) did countries make rather stronger pledges than they had previously indicated but that the business sector is taking an even more aggressive stance than governments in driving the process. In the longer term, this will make solving the key problems much easier because of the technological change that will be generated. But there is an interim stage where policy has changed, pledges have been made but the technology is still in its early stages. We think that 2022 may be one of the years when the teething problems associated with this historic change become most evident.
8) The potential for conflict between costs associated with the environmental rebooting of the economy and the official policy priority to control inflation is obvious….
9) Tech is so clearly driving the economic recovery as well as the move to decarbonise the economy that this hardly needs to be stated. But many are unaware of the pace of this change. In our World Economic League Table report we pointed out 9 sectors of engineering alone where the job creation over 10 years would need to exceed 300%. But as tech starts to dominate, its downside will move more sharply into focus. Tech has driven inequality. And the ‘supereconomies’ of scale (plus network effects) from tech mean a tendency towards monopoly which makes the inequality even worse as well as leading to an adverse concentration of economic and to some extent political power. The backlash has already started but is likely to be considerably enhanced in 2022. The trick is avoiding throwing the baby out with the bathwater….
10) On the sporting front, prime focus will be on the World Cup in Qatar starting in November. Could England’s young stars with 18 months more maturity go a step further than in the Euros? Or will Argentina celebrate Messi’s swansong? Domestically, Manchester City look too strong not to win the Premier League. The Winter Olympics start in Beijing in February and are likely to see political protests. The Commonwealth Games in Birmingham in September will apparently be the first major games to have more medals for women than men. The most important global cricket event will also be female – the Women’s Cricket World Cup in New Zealand. Having watched England’s women amazingly pull victory out of the jaws of defeat in 2018, I would be surprised if this were to be repeated. Australia are the definite favourites. And can F1 produce a more exciting season than 2021, even if some of it looked contrived? Our F1 experts, Rowlando, Peter and Irfaan say the rule changes are critical. But it’s hard to bet against Lewis Hamilton in what could be his final year. As usual we wish all our readers a good year in 2022 and that this year they can achieve their ambitions.
Douglas McWilliams email@example.com phone: 07710 083652