SEI recently released its fourth-quarter Economic Outlook. A summary of the conclusions is provided below:
- It is impossible to look at the global economy through any lens but one tinted by COVID-19.
- While COVID will remain a challenge in the New Year, we don’t see the world economy headed toward a recession.
- The economic outlook in 2022 for Canada remains upbeat. Elevated commodity prices, improving supply chain conditions for motor vehicles and parts and a competitive currency all bode well for growth.
- Of course, there are also challenges in the form rising cost pressures, labour shortages and the uncertainty surrounding the impact of the latest COVID wave and others that might follow. A turn toward monetary tightening also is concern, but we suspect that the Bank of Canada will raise interest rates in a cautious fashion, mimicking the U.S. Fed’s approach.
- In the U.S., we look for a deceleration in gross domestic product (GDP) growth in 2022, with the gain in overall economic activity around 4% (appreciably above the economy’s long-term growth potential of 2%).
- We also expect other countries to continue to post above-average advances as they recover from the past two years’ worth of lockdowns and shortages. Our expectation for growth, however, assumes that the world will continue to manage through the periodic setbacks in the battle against the disease.
- The year ahead promises to be another one of tight labour markets for the U.S. and Canada, where we expect wages to continue their sharp climb as businesses bid for workers. A disparity in compensation trends among the six richest industrialized nations means that fiscal policy responses are likely to diverge.
- Central banks in the U.S., U.K. and Canada will fight inflation by reducing stimulus. Europe and Japan are expected to maintain their stimulus efforts.
- In addition to the start of a new monetary tightening cycle, some economists have expressed concern about the next “fiscal cliff” facing various countries, the U.S. in particular, as stimulus efforts are reduced or eliminated. This latest fiscal cliff doesn’t look quite as scary against the backdrop of the economy’s current strength.
- The shift in U.S. policy to a less accommodative stance as it fights inflation probably represents a formidable headwind for emerging-market economies in 2022.
- Geopolitically, investors need to deal with uncertainty all the time. It is not often, however, that geopolitics become a focus that exerts a big impact on markets, either positive or negative.
- Still, China’s performance in 2022 is one of the key unknowns that will influence global economic growth. Tension with Russia and the negotiations with Iran over its nuclear development program are also worth watching.
- Outside of these main issues, there are mundane developments that could deliver surprises that have market impact. Elections in France, Brazil and the United States are all on the radar.
- In the financial markets, the emergence of the Omicron variant has further delayed a long overdue rotation to cheaper, more cyclical stocks that are also less correlated to bond prices.
- We are maintaining our optimistic view that global growth will re-accelerate as this latest COVID wave fades.
A full-length paper is available to download if you wish to learn more about these timely topics.
SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.
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