A year in which the global economy rebounded on generous fiscal and monetary support, a rollout of vaccinations and an increase in mobility
6th Supporters of former President Donald Trump attack the United States (US) Capitol
20th Inauguration of US President Joe Biden leaves markets hungry for a renewed focus on the green agenda, support for international co-operation and a shift in trade talks with China Britain’s post-Brexit future begins after a conclusion of the transition period
11th South Africa’s (SA) State of the Nation Address focuses on the economic recovery and talks tough on corruption
24th SA national budget announces some tax relief and funding for the COVID-19 vaccination rollout
28 SA’s lockdown restrictions move from adjusted alert level 3 to 1
11th World Health Organisation (WHO) declares COVID-19 a pandemic one year ago
11th Peru hosts presidential elections for the fifth president in as many years, which goes into a runoff
22nd President Biden hosts the Climate Assembly to mark the fifth anniversary of signing the Paris Agreement on climate change
8th First case of the Delta variant of COVID-19 detected in SA
21st Standard and Poor’s Global Ratings (S&P) and Fitch affirm SA’s sovereign rating and outlook
24th Seventy-fourth World Health Assembly discusses access to vaccines, waiving of patents and manufacturing capacity
26th Syrian presidential election leaves Bashar al-Assad with 95% of the vote
30th SA’s lockdown restrictions tighten from level 1 to 2
11th Group of Seven (G7) Summit results in pledges on COVID-19, tax and the environment
14th NATO (North Atlantic Treaty Organisation) Summit discusses how to reinforce the Alliance’s unity and addresses ties with Russia
15th SA’s lockdown restrictions move to level 3 due to the third wave
18th Against the backdrop of the lowest voter turnout in history, Ebrahim Raisi comfortably wins 13th presidential elections since the establishment of the Islamic Republic
28th SA’s lockdown restrictions tighten to an adjusted alert level 4
1st European Union launches vaccine passport
1st Celebrations mark the 100th anniversary of the founding of the Chinese Communist Party
9th Damaging riots take place in SA’s major provinces, triggered by the imprisonment of former President Jacob Zuma
23rd Tokyo hosts the Olympic Games after postponement due to COVID-19
12th Zambian presidential elections result in a new era with Hakainde Hichilema claiming victory over incumbent president Edgar Lungu
25th Rebasing exercise leaves nominal gross domestic product 11% larger in SA
31st US Armed Forces completes its withdrawal from Afghanistan
Fears of China’s Evergrande Group defaulting incite market volatility
11th Twentieth anniversary of the 9/11 attacks
13th SA’s lockdown restrictions ease to adjusted alert level 2
20th Canadian Prime Minister Justin Trudeau holds snap elections two years early and wins but with a smaller margin than expected
26th Green Party emerges as the kingmaker in the German federal elections
1st SA eases lockdown restrictions to adjusted alert level 1
4th Fumio Kishida becomes Japan’s 100th prime minister
10th After a delay, presidential elections in Iraq result in a shift in the popular vote
30th Group of 20 (G20) discusses how to accelerate the global recovery and how to tackle climate change at the G20 Summit in Rome
31st A total of 151 countries agree to slash global emissions by half by 2030 at the COP26 Climate Summit in Glasgow
1st SA holds its five-yearly local government elections, in which the ruling party gets less than 50% of the votes for the first time nationally
3rd US announces it will begin to taper its asset purchases by the end of the month
8th US land and air borders open to fully vaccinated international visitors
11th SA’s medium-term budget shows a smaller-than-anticipated fiscal deficit relative to February’s projections thanks to a commodity price lift
18th SA Reserve Bank raises interest rates for the first time in three years
19th S&P and Moody’s opt not to release an update of SA’s sovereign rating
21st Chile has most polarised presidential elections in decades
24th SA reports finding of Omicron variant to the WHO
24th Libya holds presidential election
Economic outlook for 2022: Learning to live with COVID-19
Cuts to projected growth have been made in line with a resurgence in COVID-19 cases and lingering supply-chain disruptions, which have dimmed the outlook for 2022.
The Bloomberg median consensus forecast expects growth of 3.9% in developed markets (DM) and 5% in emerging markets (EM) for 2022. These figures remain above trend, arguing against fears of stagflation.
Demographic movements in China have prompted a shift in focus towards the quality of growth and a more equitable distribution of economic gains. We expect increased government influence and more emphasis on redistribution and structural changes in the economy, with a lesser focus on shorter-term cyclical outcomes.
Pent-up demand has been a distinguishing factor driving global inflation higher this time around, unlike in the 1970s, when supply shocks sent prices soaring.
We expect a normalisation of household savings, an unwinding of supply-chain bottlenecks and a return to the labour force to alleviate global inflation pressures. Inflation expectations have remained reasonably well anchored, lowering the impact of the second-round effects of high headline inflation.
Against a backdrop of milder global growth, shaped by less accommodative fiscal and monetary policy, demand for South Africa’s (SA) exports are likely to soften. Moreover, lingering unemployment will take the shine off consumption spending in 2021. As such, we see growth slowing from an estimated 4.9% in 2021 to 2% in 2022 and 1.8% in 2023.
A more fragmented political landscape presents challenges to fast-tracking key structural reforms to resolve low trend growth in SA.
Restraining expenditures, defunct municipalities and increased allocations to financially- and operationally-ill state-owned enterprises (SoEs) remain key risks to SA’s fiscal consolidation path.
While potentially permanent increases in government spending threaten a looser fiscal policy stance relative to government’s envisioned consolidation path, monetary policy has shifted into tightening mode.
We believe that elevated fiscal risks in the medium term, concerns around trend growth and an unwinding in SA’s terms of trade will continue to drive a weakening bias in the currency in the medium term. Nevertheless, the level of passthrough into inflation remains low.
A tempered rise in rental inflation and reduced increases in medical aid tariffs are likely to drive an atypical response in local inflation. We expect headline inflation to average 4.5% in 2021, 4.6% in 2022 and 4.3% in 2023.
In our view, well-behaved inflation, anchored inflation expectations and a pedestrian growth outlook advocate for a more moderate interest rate hiking cycle. We expect the SARB to hike interest rates by 150 basis points on a staggered basis in the next two years.
Source: macro research and asset allocation Momentum Investments
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