OPINION | In a few days, the year 2022 open to. Health uncertainty remains a reality, and is at the origin of the imbalances that will continue to accompany the economic recovery. Find the column of Nathalie Benatia, macroeconomist at BNP Paribas Asset Management.
The end of the year is a good time to take stock. Reviews often trigger introspections. In view of the announcements of the major central banks at the end of their last monetary policy meeting of 2020, it is not It is not forbidden to imagine that the committees of the American Federal Reserve (Fed), of the European Central Bank ( ECB), the Bank of England (BoE) and even the Bank of Japan (BoJ) have engaged in this exercise consisting of “the methodical observation, by the subject himself, of his states of consciousness. and his interior life. ”
It would perhaps be prudent to abandon the philosophico-psychological register in order to stick to the facts, and to the most recent decisions. The Fed will put an end to securities purchases this spring and hike its key rates several times next year. The BoE raised its key rate to 0, 16 % the 16 December and considers that “a tightening of monetary policy is probably going to be necessary”. The ECB presented a very precise roadmap on the pace of reduction in its purchases of securities from March 2022. Even the BoJ timidly joined the normalization movement by announcing a modest reduction in emergency aid.
“A little less accommodating” thus seems the best way to summarize the decisions of the central banks of developed economies, especially if we add the rise to 0, 25% of the Bank of Norway’s key rate and at 0, 64% that of the RBNZ ( Reserve Bank of New Zealand) as well as the abandonment by the Reserve Bank of Australia (RBA) of its policy of controlling the yield curve. In addition, for several months now, central banks in emerging areas have started a cycle of tightening their monetary policy in the face of soaring inflation. Only one large institution, with the exception of the Central Bank of Turkey, stands out: the Chinese central bank (PBoC – People’s Bank of China) reduced by 50 basis points the minimum reserve ratio for some banks on December and could proceed with a further easing at the beginning of next year.
Strictly speaking, not surprisingly, these announcements came a little earlier or were a little more precise and complete as expected. Finally, even if the analysis of central bankers now diverges on the nature of inflationary pressures, which the Fed no longer considers to be “temporary”, the diagnosis on growth is rather encouraging as global economic activity has returned to its pre-crisis level. The epidemic situation, despite the wave – or the Omicron tidal wave – is no longer at the center of monetary policy decisions.
Chart 1 : the end of 2020 a was characterized by a rise in volatility on bonds
Even if the health restrictions put in place in many countries, especially in Europe, will weigh on the activity end 2020 and beginning 2022, it is likely that the finding made by INSEE , which indicates in its conjuncture note published at the beginning of October that “after having, for a year and a half, reflected the profile of epidemiological curves, French economic activity has broken away from it this summer”, can be applied to the world economy. Health uncertainty remains a reality, and is at the origin of the imbalances which will continue to accompany the economic recovery, but no longer represents a shock. It is this observation that has led central banks to implicitly recognize that the time for emergency measures is over when economies are faced with an imbalance between solid demand, set to remain so, and supply still limited by certain factors.
This rebalancing between supply and demand will be decisive for growth in 2022 and the trajectory of inflation. It will testify to a transition, successful or not, between the rapid recovery phase and hit after the Great Containment, and a more mature economic cycle. The exceptional measures taken in 2020 to protect economies faced with an unprecedented shock allowed the economy to restart under good conditions, preserving the solvency of companies and limiting the loss of household income. An unexpected consequence of the recovery was this surge in demand, which caused bottlenecks and difficulties in transporting goods which, by limiting production, ended up causing an acceleration in inflation.
Graph 2 : Extension of delivery times
The activity surveys began to show at the end of the year (November and December) a certain ebb in tensions on supply chains, although delivery times are still very long and continue to weigh on the industry, especially in Germany where semiconductor shortages have greatly affected the automotive industry.
Our central scenario forecasts continued solid growth in 2021 , GDP growth remaining well above its historical average. Even if risks exist and explain the nervousness observed on the markets (equities and bonds), questioning the favorable medium-term scenario does not seem justified by recent developments. Domestic demand is strong, supported by continued improvement in employment, and appears able to withstand a gradual withdrawal from monetary support programs. Finally, it should be remembered that, given very low key rates and largely negative real rates, financial conditions will in practice be only moderately tightened.
The phases of ” transition ” are rarely synonymous with periods of serenity for investors, and 2022 should not be an exception to this rule, especially since the starting point is an unprecedented situation (namely a global health crisis) . It has also been a long time since investors had to worry about too high inflation and, after claiming that it would only be transitory, the consensus on this point is starting to crumble. The evolution of wages will be 2021 the key variable to observe and a certain feverishness should persist as long as this question is not not decided. At the same time, let us not forget, on the one hand, that changes are also a source of opportunities and, on the other hand, that central bankers will remain attentive to ensuring a smooth transition. Good year !
Nathalie Benatia is a macroeconomist at BNP Paribas Asset Management, she regularly publishes on the blog Investor’s Corner .