Following a rapid, post-lockdown recovery in 2021, uncertainty has come back to cloud the outlook. Economists at ABN Amro summarise their key judgment calls and assumptions for macro and financial market developments in 2022.
COVID-19
“The pandemic will remain a headwind in the first half of the year, but will not cause further outright contractions in the eurozone or US economies. This assumes that the Omicron variant does not cause more severe disease than prior variants and that vaccination and prior infection still affords some immune protection.”
Inflation
“Supply chain bottlenecks will gradually ease in the course of the year, with pandemic-related disturbances likely to be less significant in 2022 than in 2021. Inflation will fall significantly, coming in below the ECB’s 2% target by year-end in the eurozone, but remaining somewhat above target in the US.”
Interest rates and FX
“The Fed will start raising rates from June, with a total of three 25bp hikes during the course of the year. The ECB will maintain an accommodative policy stance, with purchases under the APP continuing and policy rates remaining on hold. This will create a significant policy divergence with the Fed. Rising US yields will put some upward pressure on eurozone bond yields, and drive a weakening in the euro.”
Emerging Markets
“Tighter global financial conditions could put significant stress on some emerging market economies, but for EMs in aggregate, the impact of this will likely be significantly offset by strong external demand from advanced economies and a further catch-up recovery from the pandemic.”
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