Global GDP could rise over 4 per cent in 2022, but risks abound, according to the Economist Intelligence Unit (EIU).
While different regions will recover at varying speeds, global risks could derail growth everywhere.
Divided world
First, the global economy could split in two as countries side with either the US or China. That could force companies to create two supply chain systems. In addition, countries may choose to postpone 5G networks in the face of possible sanctions from either the US or China, said EIU.
Second, the US stock market could crash because of tightening monetary policy. “Given that US stock price/earning ratios are currently higher than before both the 1929 and the 2007-08 crashes, accelerated interest-rate increases could be enough to initiate a sharp stock market adjustment,” the report said.
And China also faces challenges. Third, a property crash in China could tip the country into an economic slowdown. The property giant Evergrande struggled to pay debts of about $300 billion in 2021. EIU said that other property companies in China also carry large levels of debt. While a collapse is unlikely, containing the issue to Evergrande alone will be a major task for China’s regulators.
Covid still here
The report said that the pace of vaccine rollouts is the main variable in its predictions of economic growth. In fact, a new, more aggressive variant of the virus poses the greatest threat to economic recovery.
Not only that, but as the pandemic continues to diminish the quality of life in many countries, the risk of social unrest increases. “Countries where political tensions are already high appear to be especially at risk, but so are those whose economies were hit the hardest by the pandemic,” the report said.
Read EIU risk outlook 2022: 10 scenarios that could impact global growth and inflation
