The central bank bears most of the economic protagonistmo in the next year, in which growth and inflation will mark the delicate process of withdrawing some historical stimuli. The elections in France and the midterm elections in the US are the main political events.
On January 26, the Federal Reserve (Fed) holds its first meeting on monetary policy in 2022. It will still be too early for the institution to feel the urgency of executing the first rise in official interest rates of this cycle, it should not even anticipate expectations (three this year). Yes, you will have more information on the current peak of inflation, on the evolution of the cost of energy and on the problem of bottlenecks in world trade, the three main uncertainties regarding the economic recovery of the last months of 2021.
Any setback by the Fed will be deadly for the market, sustained in good part since April 2020 by the historic and extraordinary injection of liquidity designed in response to the Covid pandemic by the body chaired by Jerome Powell, and in parallel by the rest of central banks. But a failure will not be necessary for there to be scares, any misleading message will raise the tension.
“Investors must be proactive and prepare for volatility in 2022,” acknowledges the team of analysts at Allianz Global Investors in their outlook report for 2022. On February 3, the European Central Bank (ECB) opens. Although it will be March 10, the 16 of that same month in the case of the Fed, when the big announcements could arrive.
To begin with, that same month the eurozone’s emergency debt purchase program ends, and it will depend on the progress of the economic recovery how the pre-pandemic program accelerates or decelerates with which the institution has left room to respond with flexibility to contingencies to come.
“An accommodating and protective ECB, together with continued fiscal support from governments, could maintain favorable credit conditions, sustaining the cycle and assets,” summarizes the team of experts at Andbank in their projections. “The agency justifies its position in its belief that inflation could have peaked,” he continues.
Regarding the Fed, “it is on the path of normalization, but keeping the cost of capital below the return on capital,” they recall from Andbank. “The current levels of inflation would be seen by the institution as a window of opportunity to regain gunpowder and room for maneuver in the face of future crises,” they summarize.
Los ‘Next Generation’
Shortly before Christmas Eve, the European Commission (EC) authorized the payment of 10 billion to Spain from Next Generation reconstruction funds. In summer another 9,000 arrived. For August 2022, the pre-financing of the second installment is planned, a total of 18,000 million euros more towards the end of the year.
This European Union (EU) recovery fund takes center stage with the gradual withdrawal of the ECB from the market. “Investment will become the engine of growth in 2022, where we expect the greatest impact from European funds,” says the Bankinter team of analysts.
Political appointments
Along with the implementation of these plans, the political and geopolitical dimension will be crucial for the EU, with the debut in the Bundestag of the new German government, the elections in France, Portugal or Hungary, the pulse of the latter country and of Poland with the rest of the community club, the tensions with Russia and its impact on energy, the trade tensions with China and the divorce with the United Kingdom and all its consequences.
The presidential elections in France deserve a special mention, with the memory of the volatility that the same event generated in 2016. The risk of a victory for the far right will once again sweep across Europe in April (see graph).
In the United States, the president will face his first big test, the midterm elections in November, with the Democratic Party divided and the Republican Party able to achieve a good result that generates a blockage in the Administration. Inflation is the main stumbling block for Biden to present himself as the leader of the economic recovery.
In China, Xi Jinping will revalidate his position as head of the Chinese Communist Party for a third consecutive time in 2022, something unprecedented in the history of the Asian giant. Meanwhile, tension with the United States and with the European Union continues. In October, there will be elections in Brazil.
Spain will receive the 10,000 million of the first tranche of the EU fund before the end of the year
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