Last week’s article focused on three of the biggest challenges facing the world in 2022, namely the onward march of the novel coronavirus (COVID-19) pandemic, the risk of military confrontation between Russia and Ukraine, as well as increased tensions in the Taiwan Strait. Pertaining to the latter two, the assessment was that any direct military confrontation carried the risk of broader contagion, potentially involving the United States (US) and its major allies. Direct confrontation would also severely disrupt global shipping, logistics, supply chains and energy, further compounding challenges facing the global economy.
This week, I will focus on other issues to keep a close eye on in 2022. Large parts of the previous year were dominated by global supply-chain bottlenecks, inflation, and low or no growth for many of the world’s economies. Several analysts are predicting that some of these challenges may ease this year, albeit to varying degrees.
In the build up to Christmas 2021, some economists were predicting consumer shortages owing to supply-chain problems in Asia, Europe and North America. Fortunately, the worst of those predictions did not materialise as global supply-chains largely improved in November and December 2021. For instance, in the US, the wait time for ships docking at the Port of Los Angeles shortened, and more loaded ships departed American ports towards the end of 2021. Some analysts are now predicting that supply-chain bottlenecks may ease further in 2022.
Should supply-chains improve this year, this is likely to have a positive knock-on effect on inflation, thereby bringing down the cost of goods and providing some reprieve to consumers around the world. Prior to the COVID-19 pandemic and the attendant supply-chain problems which followed, an importer in the Caribbean may have been able to source a 20-foot (ft) container for roughly US$3,000. By the end of 2021, the price for the same sized container had tripled. Assuming that some level of normalcy returns to supply-chains, as predicted, these prices are likely to come down. However, as often happens, smaller economies are unlikely to benefit from relief in the short to medium-term since, among other things, their insertion into global supply-chains is miniscule at best. Therefore, even if some parts of the world, especially the bigger economies see some relief in 2022, many other parts of the world may not follow.
There are also encouraging signs for the US economy in 2022. The Conference Board is predicting growth of 3.5 per cent; Goldman Sachs is predicting 3.8 per cent; and Bank of America predicts 4 per cent. Writing for The New Yorker, John Cassidy notes that if the US economy does expand by somewhere between 3.5 and 4 per cent, while that would represent a slowdown from 2021, it would nonetheless still represent a very strong economy. When one considers that in the decade before the pandemic, the US failed to reach growth of 3 per cent, current and projected levels of growth do paint an optimistic picture.
The US remains the world’s largest economy and a major trade and economic partner for many countries, including those in the Caribbean which share geographic proximity with America. Therefore, strong growth in the US economy can also buttress the global economy as well as those individual economies which maintain strong trade and economic ties with the US.
Unfortunately, challenges in China’s economy, the second largest in the world, could upend the positive signals coming from the US. Cases of the Omicron variant of COVID-19 are currently rising in China. In pursuit of its “zero-covid” policy, China could conceivably place large parts of its economy in lockdown.
This could roll back progress being made with respect to global supply-chain challenges and global economic growth.
Finally, any predictions for the global economy in 2022 are heavily caveated by what happens with COVID-19.
A return to the days of lockdowns or prolonged absences of workers from their jobs because of an infection would negatively impact the global economy. This underscores the need for a more co-ordinated global response to the pandemic, including with respect to travel protocols, and the availability of vaccines and other treatments.