Most advanced economies should continue to deliver above trend growth rates in 2022 as the recovery from the pandemic broadens. We expect policymakers to work towards fixing global supply-demand imbalances to help both inflation and unemployment to fall. In this environment, asset markets will need to cope with both the implications of policy normalisation and slowing growth rates that may weigh on returns. Uncertainty remains elevated, particularly given the Omicron COVID variant that presents considerable downside risks to global growth.

US and Advanced Economy CPI


Source: IFM Investors

As we write, the new Omicron variant of COVID-19 is reverberating through markets and the impact on markets and economies is highly uncertain. It is an open question as to whether this will be a less harmful variant that can be addressed within current parameters and vaccinations, or a more virulent strain that is a greater threat to public health. The latter would likely result in ongoing risk-off moves in markets as they anticipate renewed restrictions that would lower growth and foster even more inflation, and potentially more policymaker action.

Other risks to the outlook include US-China trade tensions, elections in the US and parts of Europe and continued Brexit uncertainty in the UK.