Munich Re is predicting a bumpy global economic recovery, extended higher interest, and continued supply chain bottlenecks for 2022, according to a new report from the reinsurer.
Writing in its Economic Outlook, the organisation said that despite above-trend global growth and receding inflation over the course of the year, uncertainties have resurfaced and remain around outlook.
Across the USA and the Eurozone, Munich Re predict that real GDP growth in 2022 will be 4.0% and 3.9%, respectively. These figures are lower than in 2021, when they were estimated to have been 5.6% and 5.2%. Alongside the US and the Eurozone, Munich Re also calculated real GDP growth for Germany, China, Japan, and the UK. All were forecast lower values for 2022 than in 2021.
Writing in the report, its authors said: “The high GDP growth rates we are projecting for 2022 do not indicate a boom. They show the ongoing recovery from the sharp recession of 2020 and the setback especially of European economies in winter last year. While the US reached its pre-crisis GDP level already in Q2 2021, the euro area is only about to recover to its pre-pandemic GDP level in the current quarter, while Germany and the UK should be there in Q2 2022.”
Munich Re admitted that its predictions are, however, underpinned with some assumptions. Firstly, that private consumption arising from unplanned savings will be an important driver of normal growth. And, second, that the Omicron wave of the pandemic will not result in hard lockdowns or significantly more-cautious consumer behaviour.
Risks to the growth outlook, wrote Munich Re, are ‘clearly tilted to the downside’.
The report’s authors added: “New coro-navirus variants that challenge the effectiveness of vaccines could lead to re-newed restrictions and consumer reluctance. The problems in the global supply chain could last longer than currently expected—e.g. if growth-disrupting effects of China’s zero-Covid policy spread across the global supply chain. Energy prices could increase further and thus reduce consumers’ purchasing power and/or affect energy-intensive industries more than expected.”
They went on: “A geopolitical hotspot (e.g. Russia/Ukraine) could lead to problems on capital or commodity markets or impede international trade and investment. Finally, central banks could react faster or more strongly than expected to high inflation—which would likely worsen financing conditions and thus dampen economic growth.”
Munich Re also admitted that the current high inflation had blindsided it, writing: “We did not expect inflationary pressures to remain for so long. Especially supply and de-mand imbalances related to the pandemic and the reopening of the economy contributed to the elevated levels of inflation.”
However, it said that inflation in advanced economies should recede over 2022, even if the peak has not yet been reached.
Munich Re added: “In any case, we do expect inflation over the next few years to be higher than in the low-inflation decade from the global financial crisis up to the Covid-19 recession. In addition—in contrast to the years prior to the pandemic when inflation on average was lower than central banks’ targets—we consider it more likely that inflation will be above central banks’ targets in the future. This is based on the assumption that structural forces such as digitalisation will continue to keep a lid on inflation. However, the decarbonisation of the global economy might increase energy price volatility.”