- The global economy will continue to recover in 2022
- 2022 growth carried by private sector
- Inflation temporarily above central bank targets
- Equities remain most attractive asset class
- Erste AM funds record strong increase in volume
Austrian Erste Asset Management (Erste AM), the capital investment company of Erste Group Bank AG, is optimistic about the economic recovery in the wake of the global pandemic continuing in 2022. While the economy will not grow at the same speed any more as in 2021, the expected growth rate of 5% is still clearly above potential, as Erste AM Chief Investment Officer Gerold Permoser explains at the press conference for the capital market outlook 2022.
Recovery carried by private sector
“In comparison with earlier recessions, we have managed to exit the crisis rather quickly this time. The crucial factor for this to happen was the monetary and fiscal policy of the central banks and governments, which had been supporting the strong recovery of the economy and the labour market throughout 2021”, stresses Permoser.
The recovery would continue in 2022 and was driven by the private sector, as Permoser stated at the press conference. Consumer demand would remain high. The stocking-up of inventories, which were empty after the pandemic, would have a positive impact on demand in 2022.
While there was the risk of setbacks caused by further covid waves, it was less significant than in the past. Another risk associated with the optimistic forecast was based on the sustainably high inflation rates, which in turn put pressure on the central banks to tighten the monetary policy sooner than currently expected.
The strong increase in prices was mainly due the special situation caused by shortages in commodities, semiconductors, and transport costs. This situation should be resolved in the first half of 2022.
China with new growth strategy
China is a lynchpin to the continued economic recovery. The tightly managed economic power is restructuring its economy, focusing on the strengthening of its domestic economy and of its independence.
This is to be achieved by concentrating on key industries, financial and real estate market stability, mega investments in decarbonisation, and the levelling of the high-income inequality. While this re-orientation will eat into China’s growth rates in the short run, it will be positive for its long-term growth prospects.
Thus, China can remain the engine of the global economy, but only those sectors will benefit that are linked to consumption (as opposed to the real estate or the export sector).
Change of monetary course
As the recovery progresses and the private sector will start assuming a more important role, the central banks will be gradually tapering the extremely supportive monetary policy they have been pursuing over the past two years.
The currently high inflation rates, in particular, have put accelerated pressure on the central banks, much more so than at the beginning of the year. In the emerging markets, where inflation expectations are less solidly anchored and central banks are often less politically independent, many central banks have been forced to tighten the monetary reins.