2022 will be the year of full global economic recovery, JP Morgan says

There will be strong cyclical recovery, return of global mobility and release of pent-up demand from consumers and corporates

An Indian health worker collects a swab sample from a passenger for a Covid-19 test at Chennai Central railway station. EPA
Beta V.1.0 - Powered by automated translation

The year 2022 will be when the world registers a full, global economic recovery, according to US investment bank JP Morgan

The Covid-19 pandemic will end next year, ushering in a return to the economic and market conditions the world had before the outbreak, the bank said in its “2022 Year Ahead Outlook Report".

The recovery is “warranted by achieving broad population immunity” and “with the help of human ingenuity, such as new therapeutics expected to be broadly available in 2022”, said Marko Kolanovic, JP Morgan’s chief global markets strategist and co-head of global research.

This would result in a strong cyclical recovery, a return of global mobility and a release of pent-up demand from consumers and corporates — particularly inventory, capex and buyback recovery, said Mr Kolanovic.

“We stress that this demand would happen in a backdrop of still-easy monetary policy [zero rates and incrementally smaller but positive quantitative easing].”

The Covid-19 pandemic last year tipped the world economy into its worst decline since the Great Depression, forcing countries into lockdowns that led to higher unemployment and reduced salaries, the International Monetary Fund reported.

In October, the fund lowered its growth forecast for the global economy to 5.9 per cent for 2021 because of a “hobbled” recovery due to the Covid-19 Delta variant, divergence in vaccine campaigns, continuing supply-demand mismatches, rising inflation, high debt levels and financial market volatility.

The global economy contracted 3.3 per cent last year.

JP Morgan remained positive on equities, commodities and emerging markets. Reuters

The New York-based lender said economies around the globe made great progress towards recovery and reopening in 2021 but the recovery was uneven, incomplete and interrupted by new virus outbreaks and scares.

“In fact, despite vaccines, significant natural immunity and various restrictive measures — the virus took a larger human toll this year than last,” it said.

“Aggressive policy stimulus was a key catalyst of the recovery but has bloated public sector debt and central bank balance sheets.”

JP Morgan remained positive on equities, commodities and emerging markets. Its 2022 price target for the S&P 500 is 5050 points, which represents a smaller percentage appreciation compared to the 2021 forecast.

“However, we do think international equities, emerging markets and cyclical market segments will significantly outperform and deliver two to three times higher returns,” said Mr Kolanovic.

“The reason for this is our expectation for increasing interest rates and marginally tighter monetary policy that should be a headwind for high-multiple markets such as the Nasdaq.”

Divergence in vaccine campaigns around the world has hobbled economic recovery, experts say. AFP

The bank said that as the recovery runs its course, markets will begin adjusting to tighter monetary conditions, a process that is likely to inject volatility.

Despite the positive market outlook, the bank said there are certain risks investors will need to monitor and manage next year, including increased geopolitical tension in Europe and Asia (in Ukraine and Iran in particular), a looming energy crisis, uncertainties about high inflation and the normalisation of monetary policy.

Political events will also merit investors’ focus, with important US elections in November and several elections in Europe.

The report also found that ransomware attacks have accelerated during the pandemic. A series of cyber attacks in several industries and against critical infrastructure led the estimated cost of cyber crime to increase by more than 50 per cent over the past two years alone, “representing a $1 trillion drag, or roughly the equivalent of 1 per cent of gross domestic product”.

“Cyber-security demand is escalating as the shift to the cloud and digital transformations are motivating companies to adopt zero-trust architectures that treat all users inside or outside the organisation the same to minimise threats,” the report said.

The main pillars of this architecture include robust identity solutions and remote access as well as cloud, data and endpoint security.

Updated: December 11, 2021, 7:04 AM