The global economic recovery is being held back by the ongoing COVID pandemic. However, the mutating coronavirus is just one of the main risks which could dampen investor spirits in the coming year.
The global economy recovered strongly in 2021 from its pandemic lows, only to lose some of its steam in the second half thanks to fresh pandemic outbreaks, supply chain bottlenecks, labor shortages and a slow rollout of COVID-19 vaccines, especially in low-income developing countries.
Supply chain bottlenecks
Supply chain disruptions have played a key role in stalling global recovery this year. Shipping snarls along with a shortage of shipping containers, and a steep rebound in demand once pandemic-related restrictions were eased, have left producers scampering for components and raw materials.
The auto sector has been among the worst-hit, with production tumbling in the euro-zone, including in Germany, in recent months. Carmakers have cut production as intermediate equipment, especially semiconductors, remain in short supply.
Soaring inflation
The raw material and input shortages, along with higher energy prices, have pushed inflation in the euro-zone and the United States to multiyear highs. This has spooked global investors who fear that central banks would be forced to prematurely raise interest rates to tame soaring prices. The European Central Bank has maintained that prices have been pushed up by temporary factors such as supply shortages, higher energy prices and base effects. It expects inflation to cool once the effects of global demand-supply imbalances subside.
China crackdown
A slowdown in China, the world's second-largest economy, would certainly add to investor worries in 2022. The Asian economic powerhouse helped the world emerge out of the pandemic-induced recession in 2020 riding on global demand for its electronic and medical goods. It was the only major economy to grow in 2020 and is expected to expand by around 8% this year, making it the fastest-growing major economy after India. However, the post-pandemic recovery is being disturbed by Beijing's crackdown on its tech titans, including ALIBABA and TENCENT, and heavily indebted firms like EVERGRANDE and KAISA, and the private education industry.
Geopolitical tensions
Even as temperatures drop in the Northern Hemisphere, they have been rising as far as relations between Russia and the US and European allies are concerned. Washington has warned Moscow against invading Ukraine amid a massive Russian troop buildup on the Ukrainian border. The US and European allies are weighing more economic sanctions against Russia, including stopping the controversial Nord Stream 2 gas pipeline, should it invade its neighbor.
"If the US and Europe halt the Nord Stream 2 pipeline, that could lead to a global energy crisis that sends oil costs towards $100 a barrel...Surging energy prices could be the straw that forces central bankers globally to accelerate tightening monetary policy” told DW.
US-China relations have also been tense over Taiwan, with Washington warning Beijing against unilaterally changing the status quo over the island territory.
Washington has further irked Beijing with its announcement that US officials will boycott the Beijing Winter Olympics in February over China's human rights "atrocities." China has threatened that the US would "pay a price" for its decision.
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