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.
  • We look for a deceleration in U.S. 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.
  • Just about everyone in the U.S. now sees inflation continuing at elevated levels this year and into 2023.
  • The year ahead promises to be another one of extremely tight labor markets (especially in the U.S.), 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 Fed policy 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.

Legal Note

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is for educational purposes only and should not be relied upon by the reader as research or investment advice.

There are risks involved with investing, including loss of principal. Diversification does not ensure a profit or guarantee against a loss. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds will decrease in value as interest rates rise.

Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its subsidiaries assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI.