2022 2022 2022

2022 means the birth of slowflation

Macro
CD
Christopher Dembik

Head of Macro Analysis

Summary:  Looking ahead to the new year, we have asked the Saxo Strats what they will be looking at in 2022. This is the inaugural article from our economist Christopher Dembik, looking at how the macro economy scene is expected to play out.


Our baseline for 2022 is that growth will disappoint while inflation will surprise on the upside. The U.S. Federal Reserve forecasts that the U.S. YoY growth will reach 4 % in 2022, for instance. This seem high in our opinion, with three interest rate hikes expected, and perhaps four if inflation is above the target, and thus we see the U.S. economy cooling down more than most of our economist colleagues. We have entered a new period of economic history: the slowflation, with slower growth and high inflation.

2021 is behind us and now it is 2022. While we aren’t out of the pandemic’s shadow yet, the global economy powered through last year and with it followed discussions about how aggressively especially the US, UK and European central banks should start rolling back their historically large support to the financial markets and increase interest rates. These discussions have occurred on the back of inflation numbers that have soared, with one of the primary outstanding questions being whether it is elusive or here to stay.

Navigating this inflation headache was complicated in 2021 and it will remain a major issue in 2022. During the peak of the pandemic, governments protected income and a large share of that income went into goods when the economies re-opened. Inflation came from the production side due to bottlenecks, underinvestment in fossil energy infrastructures and container imbalances, amongst other things. Some factors pushing inflation upward are cyclical. Others are structural.

Looking at this picture, there’s little doubt that on average inflation in the coming years will be higher in most countries than in the decade prior to the pandemic. Most central banks are aware of this new reality, but there are some exceptions. A bunch of central banks, such as the European Central Bank (ECB), still consider that inflation is transitory. In our opinion, this is a wrong macroeconomic assessment. Inflation is here to stay. The ECB is therefore well behind the inflation curve and it begs the question about how – if they realise this – will they then tighten their fiscal policy significantly?

There is a high level of uncertainty about the trajectory of growth too. Our proprietary leading indicator for growth, global credit impulse, tracks the flow of new credit for the private sector. It is expressed as a percentage of GDP. It is now at a turning point, running at minus 1.3 % of global GDP according to our preliminary estimates. When our indicator turns negative, we consider it a sign that global growth will slow down significantly six to nine months afterwards. In that case, the slowdown could start from Q2-Q3 onwards next year. This scenario has not been priced in by most investors.
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.