It’s December again and time to take stock of the year and look into the new year and what it may bring. The short version is that 2021 exceeded all expectations, while 2022 will bring many challenges.

2021 was the year when the global economy – boosted by an effective cocktail of ultra-loose economic policies and the roll-out of vaccine programmes in the rich countries – rebounded with a vengeance after the deep lockdown recession in 2020. It actually happened so quickly that global growth was stronger than at any other time over the past 50 years, and the value of the world’s total output is now greater than before the pandemic hit.

But the success has created significant bottlenecks in global value chains. Consequently, the supply of goods and investment goods cannot keep pace with the extraordinarily high demand. The result is that countries all over the world are currently experiencing the longest delivery times and highest costs of energy, materials and goods in living memory. The high producer prices have to some extent been passed on to consumers, and inflation has risen to the highest level in 30-40 years both in the US and Europe after having been almost non-existent for decades.

We are entering 2022 on a foundation of underlying strong demand, which is further nourished by the green and digital transitions that will be top priorities for governments all over the world for many years to come. But we also face capacity problems, which cannot be solved in the near future, as well as huge price pressures. And given the tight labour markets where supply and mobility are still hampered by the pandemic, wages will also predictably be driven higher and thus set in motion an incipient wage-price spiral. That is why there is a latent risk that inflation will take hold at a higher level than before the crisis.

Central banks worldwide are very concerned about this situation, although some believe that the inflation rate will peak over the coming months. Many countries have already hiked interest rates to pre-empt this development, and a controlled tightening of monetary policy will very likely be the first item on the agenda at many central bank meetings across the world in 2022.

So the new year will also see higher financing costs for most of us, just as companies and investors will have to take geopolitics into account again. It’s a concept that almost completely vanished while the world was locked down, but it has now popped up again. Just look at the new tensions between the US and China over Taiwan and the migration crisis between Poland/the EU and Belarus. New conflicts will undoubtedly arise during the year and they could also increasingly be in the form of cyber attacks aimed at public as well as private players.

Politically it will be exciting to follow the result of the presidential election in France in April where Emmanuel Macron’s main contender could be the upcoming right-wing populist Eric Zemmour and to see how the new German traffic light government will carry on the legacy of Angela Merkel and get started on its domestic top priorities in the form of the green transition and containment of the pandemic.

Because it is unfortunately clear that COVID-19 will play an important role across the world also in the new year This is clearly evident from the outbreak of the Omikron variant. But it’s worth noting that a positive reaction pattern is emerging in the financial markets as new variants occur. Share prices, interest rates and economic key figures simply fluctuate less and less each time a new variant is detected. It’s a sign that we have become used to living with the pandemic.

And that’s exactly one of the reasons why I’m still positive about the economic outlook for 2022 despite all the challenges, although growth will be somewhat more subdued compared to this year. Happy holidays!