Review of the year 2021: new variant of the coronavirus, inflation tests the strength of the global economic recovery
DUBAI: By all orthodox economic and financial indicators, 2021 was a year of strong recovery from the previous year’s “containment recession”.
But despite soaring growth forecasts, soaring stock markets and strong commodity prices, as the year drew to a close, two shadows hung over the economic outlook: the threat of the omicron variant that emerged in November. and rising trends in global inflation that threatened to confuse economic policymakers’ calculations.
Gita Gopinath, chief economist of the International Monetary Fund, stressed the push-pull nature of the global economic outlook.
“As the global economy recovers from the pandemic, great uncertainty remains about new variants of COVID-19 and increased inflationary pressures in many countries,” she said.
“If allowed to spread uncontrollably, omicron could lead to large-scale hospitalizations and further restrictions on mobility and movement, which will again have a negative impact on global economies, both advanced and advanced. ’emerging. “
Regional economists echoed his caution. Nasser Saidi, economic expert from the Middle East, said: “Unless the pace of vaccination improves dramatically (especially in low-income countries) and the new variant is quickly brought under control, the global economy could. see growth brakes at least in the first quarter. next year.
However, the reservations caused by the new variant cannot hide the fact that the world economy recovered strongly in 2021. The IMF estimated that the world gross domestic product increased by 5.9% during the year. – a big turnaround from the 3.1% drop in this total. GDP suffered in 2020 when the pandemic struck and all countries entered containment.
For the world’s largest economy, the United States, the reversal has been even more notable – from a 3.4% drop in 2020, in 2021 the economy is expected to grow 6%. A healthy American economy pulls the rest of the world with it.
The election of President Joe Biden, embarked on an aggressive policy of antivirus measures coupled with multibillion-dollar initiatives to invest in infrastructure, gave a boost to the economy and financial markets during the year.
U.S. equity markets – boosted by Biden spending programs and continued support from U.S. financial officials – have had one of their best years. The S&P 500, the most reliable index of the health of US stocks, rose nearly 30% for the year.
But there were still warning signs in the United States that made policymakers nervous. In particular, inflationary pressures continue to increase. The official inflation rate was reported at 6.8% in December, its highest level in nearly four decades.
Federal Reserve Chairman Jay Powell insisted for much of the year the price hike was ‘transient’ but continued to sound a cautious note about whether the Fed would ‘cut back’ its support for financial markets until 2022 and would slowly increase interest rates.
“Supply and demand imbalances associated with the pandemic and the reopening of the economy continued to contribute to high levels of inflation. These problems have been bigger and longer lasting than expected, exacerbated by the waves of viruses, ”said Powell.
For this other major engine of global economic growth, China, the year has been markedly mixed. The IMF forecast 8% GDP growth in 2021 – near the staggering levels that drove global economic progress in the first two decades of the century – but “the momentum is slowing,” the IMF warned, projecting a rate of growth of GDP of 5.6. percent in 2022.
Fears about the potential of the Chinese economy to drag the rest of the world upwards centered on serious structural flaws, such as the weakness of the real estate market illustrated by the virtual collapse of the Evergrande real estate group.
There were also concerns that the Chinese economy might lose its role as a global economic stimulus. Experts such as Ian Bremmer, chairman of consultancy firm Eurasia Group, have warned that China’s withdrawal from U.S. stock markets and other forms of technological trade cooperation with the U.S. and the rest of the world are problematic for the company. ‘Mondial economy.
“The dangers of President Xi getting it wrong are grave – to his own prestige and the semiconductor industry on which China depends,” Bremmer said.
The world’s third-largest economic force, Europe, also experienced a strong economic recovery in 2021, with IMF forecasts pointing to GDP growth of 5% in the Eurozone and 6.8% in the post-Brexit UK. .
While these projections are encouraging for European policymakers, they also mask the reality of severe restrictions resulting from the omicron variant in many countries and a looming winter energy crisis for many on the continent.
Gas and coal prices have reached record highs in Europe as shortages in global energy markets are exacerbated by political tensions with the main gas supplier, Russia. Oil prices are also high, adding to the inflationary fears of Europeans.
But if the surge in the prices of energy and other raw materials worries the major advanced economies, the reverse is true for the Middle East. Regional economies, particularly in the major oil-exporting Gulf countries, have enjoyed a year of solid expansion and recovery after the 2020 lockdowns.
In Saudi Arabia, the rise in the price of crude oil in 2021, as well as the expansion of the non-oil sectors of the Kingdom’s economy, means that the 2.8% GDP growth forecast made by the IMF is expected to be exceeded. .
The Saudi budget, announced in December, showed policymakers expect to be able to run a surplus in 2022 for the first time in nearly a decade, as high oil prices and post-pandemic recovery kick in. a path in the economy of the Kingdom.
Finance Minister Mohamed Al-Jadaan said, “We tell our citizens and the private sector or the economy as a whole that you can plan with predictability. The budgetary ceilings will continue in a stable manner, regardless of the evolution of the price of oil or of incomes. “
The specter of inflation hanging over the global economy is not seen as a significant threat to the Saudi economy, with forecasts ranging between 1% and 2% in 2022 well below international comparisons. Still, experts predict Saudi Arabia and other dollar-linked economies in the region will have to follow the Federal Reserve if it hikes interest rates in 2022.
A common feature of regional economies in 2021 that is expected to continue into 2022 has been dramatic growth in financial markets, fueled by soaring stock prices and an explosion of IPOs in major investment centers.
In the Saudi Tadawul market, stock prices rose nearly 30% year-on-year, culminating in the successful and oversubscribed IPO of Tadawul itself. More IPOs are in the works for 2022, financial analysts predict.
In the United Arab Emirates, there was a similar explosion in the stock markets, spurred by a series of government-linked IPOs. The long-suffering Dubai financial market grew 27%, while the Abu Dhabi Stock Exchange saw a dramatic 67% increase in share value.
Tarek Fadlallah, Managing Director of Nomura Asset Management in the Middle East, told Arab News: “The Middle East has had a good year in terms of economic and financial markets. The region is gaining a reputation as a haven in these troubled COVID times for investors, businessmen and tourists. “