Hello everyone and welcome to this episode of Ignition Time.
Folks, 2021 is almost over, thank God.
I believe that this was a horrific year
for many of us, even though even though the pandemic is beginning to end,
I can tell you that this was a very challenging year for many of us.
Welcome to our channel, everyone. My name is Dr. Nitin Chhoda.
This episode of Ignition Time is based on this article on your screen.
What could possibly go wrong?
These are the biggest economic risks for 2022.
Let's hope that 2022 is better,
but I can tell you definitively that there are a lot of risks ahead
that we need to be aware of because this channel, the Ignition Time channel,
is about the country, the economy as well as our money.
Let's start exploring what could potentially happen in 2022.
Number one, the Omicron variant and more lockdowns.
Now it's too early for us to definitively
know what impact the Omicron variant will have.
Now, it is more contagious than its predecessors, but it is also less deadly.
Now, could this help the world get back to the pre pandemic normal?
Absolutely. Because I believe that this is going to be
around for some time and we may have to get used to this.
Like we've gotten used to an annual flu vaccine.
The problem is lockdowns.
If there are more lockdowns,
this will keep people out of the travel, leisure, entertainment and hospitality
industries, which could again lead to a cycle of unemployment.
Now let's wait and see what actually happens, but more lockdowns are definitely
going to be bad for the economy and bad for the world.
Here's a chart on your screen that shows
you whether the flu or the Delta variant can have an impact on the economy and you
can start to see scenarios for services and spending
as Omicron spreads.
You can start to see that basically, there is a significant downside risk
to the economy to services and spending because of Omicron, and you can start to see
the prepandemic trend that was in the blue color at the top of the screen.
In other words, had the pandemic not been there.
Now what is happening is the yellow
represents a baseline scenario and the dark portion represents an upside risk.
I should say an upside benefit because
that does indicate that things could actually get better.
As you can see here, the yellow represents
what would happen in the absence of the Omicron variant.
The blue is where we would have been had there been no pandemic and the black
portion represents essentially a better than expected scenario.
And unfortunately, that pink portion that you see represents a downside risk.
But the fact is we may not be very lucky.
According to Bloomberg, a more contagious and deadly variant would
drag on economies even a three month return to the toughest 2021 restrictions.
Countries like the UK have already moved in that direction could see 2022 growth
slow all the way down to 4.2%. Growth is expected to be much higher in the absence
of that scenario. So that would create weaker demand.
The world's supply chain problems would persist and workers would be kept out
of labor markets and there could be further problems.
So this is not a good thing at all.
The next problem, the threat of inflation everyone.
At the start of 2021, the US was forecast to end the year with 2% inflation.
Instead, inflation is close to 7%.
Now there is some consensus that inflation
is expected to come down, but if inflation continues to go up,
things are going to get more expensive and people are not going to want to spend.
Let's take a look at this inflation chart from Bloomberg Bloomberg Economics
baseline forecast sees the US inflation going down in 2022, which is a good thing.
So basically, folks,
you can start to see based on this chart that things will get more expensive
in 2022 but then will come back to normal in 2023.
Omicron is just one cause.
Wages that are rising are another cause of inflation.
Tensions between Russia and Ukraine could send gas prices surging and climate change
causing more disruptive weather events could cause food prices to actually rise.
A new wave of the virus could hit travel, bringing down oil prices.
However, overall, this could result in a major shock to the economy.
Also, Federal Reserve rate hikes.
Recent history suggests that the Federal Reserve may start raising
interest rates and if they start raising interest rates, one thing is for sure.
The stock market is then likely to go down and home prices are likely to become more
expensive if the Federal Reserve raises interest rates three times in 2022.
Bloomberg Economics actually modeled what
would happen if interest rates went up in 2022.
And Bloomberg Economics basically predicts a recession at the start of 2023.
Here's another risk.
Fed liftoff and emerging markets now Fed
liftoff could mean a crash landing for emerging markets.
In other words, higher US interest rates
could typically boost the dollar and cost money to leave.
Yes, leave developing economies, which could result in a major problem
for developing economies like Argentina, South Africa and Turkey.
Let's take a look at this chart on your
screen, which shows you the high funding that's needed and the weak governance,
the weak governments that exist in emerging economies.
And you can start to see that these countries actually need investments.
But investments will leave these countries as the US decides to focus on itself
and money flows away from emerging economies back into the United States.
Another factor China could hit a great wall in the third quarter of 2021.
China's economy has slowed down significantly.
And overall, the Chinese economy is slowing down.
In fact, in China, home sales,
construction and prices are actually trending down.
As you can start to see on this very shocking chart.
And again, this is indicative of the fact that China is indeed slowing down.
In fact, demand is weakening finances,
constraint, property construction could continue falling in China.
Here's another factor, folks,
political turmoil in Europe, in fact, solidarity among leaders who backed
the European project could keep things under control.
But overall, if
there is trouble in Europe, it is going to impact us in the United States as well.
Remember, there's a fight over the Italian presidency.
France is heading to the polls in April
with President Emmanuel Macron facing challenges from the right.
So overall, the balance of power is indeed shifting in Europe.
Now, there are other factors like Brexit as well.
But I can tell you that the future of fiscal policy is that governments are
starting to spend very heavily to support workers and businesses in the pandemic.
So I believe that governments will start
to pull back, will start to reduce public spending in 2022.
And that could also lead to a slowdown of global economies.
In fact, let's take a look at this chart, which shows you fiscal frugality.
There are shrinking deficits in major economies, meaning that basically
the countries are like, well, it's time to stop spending so much money,
and it's now time to let the economy do its own thing.
You can start to see that shrinking deficits in major economies means less
support for spending money to grow the economy.
And so basically, you can start to see that more and more
countries will say, hey, let's stop spending so much money.
And now let's essentially get back to a normal prepandemic lifestyle.
Food prices and unrest.
This is significant.
Hunger is a historic driver of social unrest.
A combination of Corbin and bad weather
has actually led to an increase in food prices.
And you can start to see on this chart
compared to the Arab Spring, food stress is worse in some countries.
In other words, some countries are
struggling to keep food prices under control.
There are a lot of other political factors as well.
And so, folks, what could actually go right in 2022?
Well, folks, US budget policy, for example,
could actually support the US economy growing and continuing to grow globally.
Many, many, many millions of households are sitting on trillions of dollars
of excess savings thanks to all the stimulus money.
And thanks to the fact that people have actually stopped spending money,
if that money starts to be spent, and if that money starts flowing through
the economy, that could actually be a good thing.
So in the end, folks, in 2020, many countries were in bad shape economically.
But in 2021, many countries started
to recover so things could go right next year.
We could start to see things improve significantly next year.
But we also have to be aware of the economic risks, so that's it.
Everyone. Thank you so much for watching.
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Let me know what you think about the risks
to the international economy to the American economy in 2022.
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Take care. Bye.