2022 means the birth of slowflation 2022 means the birth of slowflation 2022 means the birth of slowflation

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

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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