T is for transition
The power struggle between the US and China has been one of the main sources of market jitters for years now. That rivalry isn’t likely to dissipate any time soon, but we may experience some calm in the coming months. It’s an election year in the US, and the Biden administration is likely to focus more on domestic issues in the run-up to the midterms.
And though Xi Jinping is firmly in place at the helm of the Communist Party, he too will want domestic stability ahead of the National Congress in November. That’s when he hopes to win a third term as party leader—something that was constitutionally prohibited until 2018.
Once those votes are over, tensions could soar again with "Taiwan" as the focus.
I is for inflation
The biggest surprise for central bankers in 2021 was the stronger-than-expected inflation. And it looks like it won’t be going away any time soon. Tight labor markets in the US, disrupted global supply chains, as well as high material and food prices are expected to continue at least throughout the first half of 2022.
The US Federal Reserve is winding down its massive asset purchasing program that was designed to protect the economy from the effects of the pandemic. It is expected to start raising interest rates as early as March to cool inflation.
Japan, which has been experiencing years of deflation, may briefly hit its 2 percent inflation target sometime in 2022 due to higher import prices. The challenge for policymakers will be ensuring the country doesn't fall into the pitfall of stagflation, where inflation is paired with a stagnant economy.
G is for global warming
The World Economic Forum’s 2021 risk assessment report labeled climate change a “catastrophic risk” and put it second only to infectious disease as the factor most likely to exert an economic toll. Climate experts are urging immediate action, but some industries will find it easier than others to cut back on carbon. Steelmakers are responsible for a large share of global CO2 emissions. Reducing those emissions is expensive, but the growing pressure from investors, consumers and governments could soon make the cost of inaction even greater.
Japan’s largest automaker, meanwhile, is gearing up to challenge Tesla’s dominance of the electric vehicle market. Toyota recently announced it would have a line-up of 30 models by 2030.
E is for energy
High energy prices are expected to continue to weigh on the global economy, especially in the first half of 2022. Political tensions are causing prices in Europe to spike. Russia has been throttling the flow of gas to the continent, creating an energy crisis in what is proving to be a harsh winter season.
Meanwhile, the transition to clean energy is being hindered by inflation, which makes building solar and wind farms a more costly enterprise.
R is for resilience and recovery
The COVID-19 pandemic has now been with us for two years, and some of its scars will be permanent. Global debt rose by 28 percent in 2020, hitting a record $226 trillion. Many central banks are tapering or ending their easy money policies, meaning that money may flow out from emerging markets. As we enter the third year of the virus, the world’s policymakers will need to chart balancing resilience with recovery.