Factors that point to a moderate, fragile recovery in 2022

In 2022, the economic recovery that started last year will continue, while global GDP will return to pre-pandemic levels. However, as we started to observe in H2 2021, the trend will be moderate, uneven and fragile.

Recovery will continue to be led by domestic demand and especially consumption, followed by private investment and public spending, due to unmet demand; industrial shortages that must be replenished; financial conditions that remain accommodative in most developed markets; and the lingering effects of various fiscal stimulus programs (in Europe/Spain, NextGenEU funding, for example). Meanwhile, as foreign trade continues to face challenges due to bottlenecks and shortages in global value chains, it will barely contribute to growth.

Compared to our estimates a few months ago, the outlook on recovery is far more moderate. Available savings are considerably lower than in the transition from 2020 to 2021. Inflation, in turn, will remain markedly higher than it has been in the last decade, eroding the purchasing power of lower-income households. What’s more, fiscal support for companies and households will be significantly reduced because it has been depleted and no longer has the same margin as before the pandemic. Finally, and most importantly, we are likely to face new mobility restrictions that, while minor, will also have an impact on employment and consumption worldwide. We therefore estimate that the global economy will grow by less than 5% in 2022.

On the other hand, this recovery will be uneven at the global level: while the developed markets will maintain solid growth in 2022 (with the US in the lead at full employment and EU growth continuing to double the average of the last decade), the emerging markets, especially Latin America, are facing many challenges that will slow recovery. For example, increasingly weak local currencies (despite having restored their balance of payments) will amplify the effect of inflation. This will significantly erode incomes in economies where employment has yet to recover from the crisis, while new COVID-19 variants will generate harsher restrictions in the absence of strong social protection systems. Moreover, all this will take place in a context of weaker fiscal support and restrictive financial conditions, given the tightening of monetary policy, rising borrowing costs and currency depreciation.

All in all, we expect the developed countries to grow by around 4% in 2022 and contribute more than half of global growth, while the emerging countries will do so by around 5%, accounting for just over one-third of global GDP. The dynamism of these countries will clearly vary by region. LATAM will be the region that grows the least in 2022, as it is a catalyst for all the challenges I mentioned.

This outlook on recovery is also fragile because the risk balance for economic activity is weighted to the downside. New coronavirus variants are forcing activity to be restricted again, supply problems persist in the manufacturing sector, geopolitical and overall governance tensions are growing, and inflation seems to be shifting from transitory to persistent amid the fear that it ends up being permanent.

That said, there are also reasons for optimism: substantial improvements in overall governance (at least in the developed countries) and economic policy, while not fully coordinated, are supporting the global recovery in general. At the same time, financial and fiscal conditions remain benign with the aim of unconditionally supporting the fight against COVID-19. Finally, we have far more information about the virus’ effects and consequences than at the start of the pandemic, and “uncertainty with information is risk,” something that we know how to address and manage (especially insurance groups).