Tuesday, January 18

2022: the year the ‘Old Economy’ will resist losing its grip on the business cycle

A river uprooted, gain of fishermen. The popular saying illustrates the high voltage in which the economic situation and the global geopolitical order moves in the transition between the year of the post-Covid economic cycle takeoff and 2022, which will act as a sounding board for a collision that seems inevitable. : the confrontation between Old Economy and the driving forces behind digitization and energy neutrality. The rapid waters of COVID-19 have slowed down the paradigm shift and led to the emergence of a double crisis, energy and logistics, which threatens to distort investment portfolios, corporate strategies and green projects, and could seriously jeopardize the consolidation of the newly inaugurated recovery.

Jeff Currie, chief strategist at Goldman Sachs, has spoken since the end of last summer, when the fuse of energy tensions was lit, of “the revenge of the Old Economy”. It refers to the “classic problems of the fossil production system”, with the capacity to reestablish episodes of the exogenous oil shock as in the 70s of the last century, which are translated into increases in the value of gas and crude oil that have taken a toll on the price. of electricity. These increases in energy prices have awakened the specter of inflation and shifting the pace to central banks, to the point of putting the risk of stagflation back into the limelight.

The model collision that Currie describes has been taken up by firms like consulting firm McKinsey. From the multinational it is emphasized that in 2021 a point of no return was crossed towards “the reinvention of the economy of the future” which, in 2022, should obtain a letter of nature. The reason is that COVID-19 “has reset ways of life, work and business and has accelerated the transition towards digitization and sustainability.”

The magazine ‘The Economist’ points to a triple crisis: to energy and logistics it adds that of employment, alluding to the phenomenon of the ‘Great Resignation’, which has caused more than 9 million job resignations in the US and 1, 1 million in the UK. According to the experts of the publication, these three risks will take on even more prominence in 2022, in a changing climate with numerous uncertainties and without science being able to anticipate the rapid epitaph of COVID-19.

The transforming forces navigate between two waters. On the one hand, the green route undertaken by Europe, which has been joined by the US and the rest of the G-7, in addition to China and other emerging countries, in the fight to advance net zero emissions and the reduction of global warming, with more innovation and capital intensive in digitization. On the other hand, those that band with excess demand and high expectations of online consumption, in virtual business ecosystems and e-commerce as a flag of the spending of some households. Just to have one piece of information, last summer in the US the consumption levels of households prior to the pandemic were exceeded by 7%, largely due to the generous fiscal stimuli from the White House, of more than 5 billion dollars; almost half of the 10.4 billion that the planet’s authorities made available to families and companies.

Latent risks in 2022

The epidemic will continue to govern the economic and geopolitical designs of next year. Ómicron has already caused lockdowns. The control of the variants, regardless of their degree of severity and contagion, will be decisive for certifying a recomposition of global consumption. According to ‘Bloomberg Economics’ this spending data will grow in a band between 4.7% and 5.1%. But if the variants of the virus re-impose the closures, the dynamism of industrialized powers and emerging markets would be reduced. This scenario would contract demand and stress and prolong the trade bottleneck, restrict labor markets and perpetuate the logistics crisis. The consolidation of the post-Covid business cycle would be halted.

The health crisis could also alter the inflation roadmap. The US CPI will end 2021 touching the 7% level. But, another year, the consensus expects it to be in positions close to 2% in 2022, within the limits granted to the Federal Reserve. Although with a notable exception: if omicron accentuates the health crisis, it will create labor changes in terms of wages and more resignations from jobs, they explain in ‘Bloomberg’. The virus will continue to be the nerve center.

Faced with possible turbulence, the Fed (the US central bank) has already announced that it is willing to follow in the wake of the Bank of England and raise interest rates three times in 2022, starting the upward path from March. Fed rate hikes could precipitate a hard landing for emerging market GDPs, with capital withdrawals from their stock markets and high stress on the value of their currencies. As happened in 2013 and 2018 with Argentina, South Africa or Turkey, which have already begun to emit alarm signals. Brazil and Egypt are also in the trigger and the list of Saudi Arabia, Russia and Taiwan have serious problems of debt or fiscal deficit. China still has not resolved the bankruptcy of Evergrande or the warming of its real estate and financial sectors, in addition to having its economy in slowdown.

Europe, facing a new crossroads

Meanwhile, Europe is waiting to activate all the cylinders of its economic engine, the one with the greatest power deficit in the industrialized world, with wuthering peaks in the political order. “If euroscepticism takes root again in the bloc, European bonds will be depressed and the ECB will have to go back to a rescue of the political crisis”, anticipate the experts of ‘Bloomberg’.

Among the risks are the new impacts of Brexit, with renegotiations of the divorce agreement and renewed doses of investor and business uncertainty, which can boost inflation and tariffs. In addition, Europe is entering an exercise in which the first budgetary consolidation plans will have to be designed, which will require an adjustment five times more intense than that of the austerity stage of 2008, they predict in UBS, to return to a deficit below the 3% of GDP.

In ‘Bloomberg’ they also add the tensions with a possible armed conflict between Russia and Ukraine as potential triggers for new increases in gas prices. Countries such as Sudan, Yemen, Lebanon or Egypt will also emit “signs of instability” – in demonstrations that would recall the Arab Springs, but with a greater economic background. In addition, the latent conflict between China and Taiwan, with its tentacles and ramifications towards the US, cannot be forgotten.

Finally, Erik Peterson, from the Kearney consultancy and director of the Global Business Policy Council, also points to geopolitical and economic risks on raw materials such as lithium and the logistical-commercial obstructions that prevent meeting the global demand for chips, semiconductors and other goods. manufactured.



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