The Covid years are filled with failed prophecies. That should be enough to cause pause for anyone looking forward to 2022. Most forecasters expect a strong rebound with lower prices and a shift away from emergency monetary intervention. What might go wrong? Plenty. A rogues’ gallery of threats includes Omicron, sticky inflation, Fed lift-off, China’s Evergrande fall, a run on developing markets, hard Brexit, a new euro crisis, and soaring food prices in a volatile Pakistan.
Of course, some things might go better than intended. Still, Pakistan’s Governments may elect to maintain fiscal support. China’s latest five-year plan may spur further investment. Pandemic savings might support a global spending spree.
The United States was expected to complete the year with 2% inflation at the start of 2021. Instead, it’s close to 7%. As for Pakistan, the price spike was estimated at 6% approximately but the inflation rate spiked to 11% making Pakistan the 18th country on a global index of highly inflated countries. Another major miss is possible.
Omicron is only one possible cause. Wages in the United States, which are already rising at a rapid pace, could rise even faster. Tensions between Russia and Ukraine could cause gas prices to skyrocket. Food prices may continue to climb as climate change causes more disruptive weather occurrences. Not all dangers point in the same way. A new wave of the virus, for example, might disrupt travel, lowering oil prices. Nonetheless, the combined effect could be a stagflationary shock, leaving the state and other central banks with no clear answers. Plus, the threat of lower oil prices due to rising Omicron cases can also lead to more inflation in the world economy Lower oil prices mean less drilling and exploration activity because most of the new oil driving the economic activity is unconventional and has a higher cost per barrel than a conventional source of oil. Less activity can lead to layoffs which can hurt the local businesses that catered to these workers.
Hunger is a historic driver of social unrest. A combination of Covid effects and bad weather has pushed world food prices near record highs and could keep them elevated next year. The last food-price shocks were during the tenure of Asif Ali Zardari and triggered a wave of popular protests. Although, during the regime of Nawaz Sharif the price spike was part of civilian life and it was heavily ignored but the price rise during Imran Khan’s era has instilled a shock in the minds of the general public due to the internal and external determinants.
The year 2022, if it is being envisaged can offer us some great nasty bursts. The impending challenges in the shape of pandemics and climate change can knock our roots out. Therefore, a fingers-crossed year that is 2022 must be carefully lived with reverence in the shape of proper policy making by the highest chairs around the world.
[box type=”shadow” align=”aligncenter” class=”” width=””]Article by Shahood UL Nabi Khan, MBA student at Szabist[/box]