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World economy in 2022: the big factors to watch closely

<p>Will 2022 be the year where the world economy recovers from the pandemic? That’s the big question on everyone’s lips as the festive break comes to an end.</p> <p>One complicating factor is that most of the latest major forecasts were published in the weeks before the <a rel="noopener" href="https://www.who.int/news/item/26-11-2021-classification-of-omicron-(b.1.1.529)-sars-cov-2-variant-of-concern" target="_blank">omicron variant</a> swept the world. At that time, the mood was that recovery was indeed around the corner, with the IMF projecting <a rel="noopener" href="https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021" target="_blank">4.9% growth</a> in 2022 and the OECD <a rel="noopener" href="https://www.oecd.org/newsroom/oecd-economic-outlook-sees-recovery-continuing-but-warns-of-growing-imbalances-and-risks.htm" target="_blank">projecting 4.5%</a>. These numbers are lower than the circa 5% to 6% global growth expected to have been achieved in 2021, but that represents the inevitable rebound from reopening after the pandemic lows of 2020.</p> <p>So what difference will omicron make to the state of the economy? We already know that it had an effect in the run-up to Christmas, with for example <a rel="noopener" href="https://www.theguardian.com/business/live/2021/dec/23/omicron-hits-uk-economy-growth-car-production-market-optimism-energy-crisis-business-live?filterKeyEvents=false&amp;page=with:block-61c46e4c8f08efd5f0de270a#block-61c46e4c8f08efd5f0de270a" target="_blank">UK hospitality</a> taking a hit as people stayed away from restaurants. For the coming months, the combination of raised restrictions, cautious consumers and people taking time off sick is likely to take its toll.</p> <p>Yet the fact that the new variant seems milder than originally feared is likely to mean that restrictions are lifted more quickly and that the economic effect is more moderate than it might have been. <a rel="noopener" href="https://www.reuters.com/world/middle-east/israel-admit-some-foreigners-with-presumed-covid-immunity-jan-9-2022-01-03/" target="_blank">Israel</a> and <a rel="noopener" href="https://www.aljazeera.com/economy/2022/1/3/australia-pushes-on-with-reopening-amid-milder-impact-of-omicron" target="_blank">Australia</a>, for example, are already loosening restrictions despite high case numbers. At the same time, however, until the west tackles very low <a rel="noopener" href="https://ourworldindata.org/covid-vaccinations?country=OWID_WRL" target="_blank">vaccination rates</a> in some parts of the world, don’t be surprised if another new variant brings further damage to both public health and the world economy.</p> <p>As things stand, the UK thinktank the Centre for Economics and Business Research (CEBR) published a more recent <a rel="noopener" href="https://www.bloomberg.com/news/articles/2021-12-26/world-economy-now-set-to-surpass-100-trillion-in-2022" target="_blank">2022 forecast</a> just before Christmas. It predicted that global growth would reach 4% this year, and that the total world economy would hit a new all-time high of US$100 trillion (£74 trillion).</p> <p><strong>The inflation question</strong></p> <p>One other big unknown is inflation. In 2021 we saw a sudden and sharp surge in inflation resulting from the restoration of global economic activity and bottlenecks in the <a rel="noopener" href="https://obr.uk/box/the-economic-effects-of-supply-bottlenecks/" target="_blank">global supply chain</a>. There has been <a rel="noopener" href="https://theconversation.com/inflation-why-its-temporary-and-raising-interest-rates-will-do-more-harm-than-good-172329" target="_blank">much debate</a> about whether this inflation will prove temporary, and central banks have been coming under pressure to ensure it doesn’t spiral.</p> <p>So far, the European Central Bank, Federal Reserve and Bank of Japan have all abstained from raising interest rates from their very low levels. The Bank of England, on the other hand, followed the <a rel="noopener" href="https://www.ft.com/content/ca15ce59-ca72-497c-bf7a-c1482d972f01" target="_blank">IMF’s advice</a> and <a rel="noopener" href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021" target="_blank">raised rates</a> from 0.1% to 0.25% in December. This is too little to curb inflation or do any good besides increase the cost of borrowing for firms and to raise <a rel="noopener" href="https://www.bbc.com/news/business-59140059" target="_blank">mortgage payments</a> for households. That said, the <a rel="noopener" href="https://www.reuters.com/markets/europe/sterling-nears-2-year-high-vs-euro-rate-rise-bets-2022-01-04/" target="_blank">markets are betting</a> that more UK rate rises will follow, and that <a rel="noopener" href="https://www.cnbc.com/2022/01/03/markets-and-the-economy-brace-as-the-feds-first-hike-could-come-in-two-months.html" target="_blank">the Fed</a> will also start raising rates in the spring.</p> <p>Yet the more important question regarding inflation is what happens to quantitative easing (QE). This is the policy of increasing the money supply that has seen the major central banks <a rel="noopener" href="https://www.atlanticcouncil.org/global-qe-tracker/" target="_blank">buying some</a> US$25 trillion in government bonds and other financial assets in recent years, including about US$9 trillion on the back of COVID.</p> <p>Both the Fed and ECB are still operating QE and adding assets to their balance sheets every month. The Fed is <a rel="noopener" href="https://www.businessinsider.com/personal-finance/fed-tapering?r=US&amp;IR=T" target="_blank">currently tapering</a> the rate of these purchases with a view to stopping them in March, having recently announced that it would bring forward the end date from June. <a rel="noopener" href="https://www.ft.com/content/03a30484-b265-4a88-a861-de1784305d40" target="_blank">The ECB</a> has also said it will scale back QE, but is committed to continuing for the time being.</p> <p>Of course, the real question is what these central banks do in practice. Ending QE and raising interest rates will undoubtedly hamper the recovery – the <a rel="noopener" href="https://cebr.com/reports/city-am-uk-to-remain-one-of-the-top-six-global-economies-post-covid-says-cebr-report/" target="_blank">CEBR forecast</a>, for example, assumes that it will see bond, stock and property markets falling by 10% to 25% in 2022. It will be interesting to see whether the prospect of such upheaval forces the Fed and Bank of England to get more dovish again – particularly when you factor in the continued uncertainty around COVID.</p> <p><strong>Politics and global trade</strong></p> <p>The trade war between the US and China looks likely to continue in 2022. The “<a rel="noopener" href="https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods" target="_blank">phase 1</a>” deal between the two nations, in which China had agreed to increase its purchases of certain US goods and services by a combined US$200 billion over 2020 and 2021 has missed its target <a rel="noopener" href="https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods" target="_blank">by about 40%</a> (as at the end of November).</p> <p>The deal has now expired, and the <a rel="noopener" href="https://www.globaltimes.cn/page/202201/1243977.shtml" target="_blank">big question</a> for international trade in 2022 is whether there will be a <a rel="noopener" href="https://www.ced.org/solutions-briefs/the-china-trade-challenge-phase-ii" target="_blank">new “phase 2” deal</a>. It is hard to feel particularly optimistic here: Donald Trump may have long since left office, but US strategy on China remains <a rel="noopener" href="https://www.project-syndicate.org/commentary/biden-losing-china-strategy-protectionism-industrial-policy-by-anne-o-krueger-2021-09?utm_source=Project%20Syndicate%20Newsletter&amp;utm_campaign=bf7c015f95-sunday_newsletter_12_26_2021&amp;utm_medium=email&amp;utm_term=0_73bad5b7d8-bf7c015f95-105568073&amp;mc_cid=bf7c015f95&amp;mc_eid=14a09c8529&amp;barrier=accesspaylog" target="_blank">distinctly Trumpian</a>, with no notable concessions having been offered to the Chinese under Joe Biden.</p> <p>Elsewhere, western tensions with Russia over Ukraine and further escalation of economic sanctions against Putin may have economic consequences for the global economy – not least because of Europe’s dependency on Russian gas. The more engagement that we see on both fronts in the coming months, the better it will be for growth.</p> <p>Whatever happens politically, it is clear that Asia will be very important for growth prospects in 2022. Major economies such as <a rel="noopener" href="https://www.bloomberg.com/news/articles/2021-12-22/u-k-economy-closer-to-pre-pandemic-levels-despite-3q-downgrade?sref=Hjm5biAW" target="_blank">the UK</a>, <a rel="noopener" href="https://tradingeconomics.com/japan/gdp" target="_blank">Japan</a> and the <a rel="noopener" href="https://tradingeconomics.com/euro-area/gdp" target="_blank">eurozone</a> were all still smaller than before the pandemic as recently as the third quarter of 2021, the latest data available. The only major developed economy that has already recovered its losses and regained its pre-COVID size is <a rel="noopener" href="https://www.brookings.edu/blog/up-front/2021/12/08/a-most-unusual-recovery-how-the-us-rebound-from-covid-differs-from-rest-of-g7/" target="_blank">the United States</a>.</p> <p><strong>Economic growth by country since 2015</strong></p> <p><a href="https://images.theconversation.com/files/439333/original/file-20220104-18500-zchaq3.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/439333/original/file-20220104-18500-zchaq3.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <em><span class="attribution"><span class="source">OECD data</span></span></em></p> <p>On the other hand, China has <a rel="noopener" href="https://www.worldometers.info/coronavirus/country/china/" target="_blank">managed the pandemic</a> well – albeit with strict control measures – and its economy has achieved strong growth since the second quarter of 2020. It has been <a rel="noopener" href="https://theconversation.com/chinas-problem-with-property-the-domino-effect-of-evergrandes-huge-debts-168601" target="_blank">struggling with</a> a heavily over-indebted property market, but appears to have handled these problems <a rel="noopener" href="https://www.wsj.com/articles/china-evergrande-says-construction-has-resumed-at-vast-majority-of-its-projects-11640602229" target="_blank">relatively smoothly</a>. Though the jury is out on the extent to which <a rel="noopener" href="https://edition.cnn.com/2021/12/15/economy/china-omicron-economy-intl-hnk/index.html" target="_blank">China’s debt problems</a> will be a drag in 2022, some such as Morgan Stanley <a rel="noopener" href="https://www.cnbc.com/2022/01/03/morgan-stanley-on-chinas-gdp-economy-in-2022.html" target="_blank">argue that</a> strong exports, accommodative monetary and fiscal policies, relief for real estate sector and a slightly more relaxed approach to carbon reduction point to a decent performance.</p> <p>As for India, whose economy has seen double dips during the pandemic, it is showing a strong positive trend with <a rel="noopener" href="https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021" target="_blank">8.5% expected growth</a> in the year ahead. I therefore suspect that emerging Asia will shoulder global growth in 2022, and the world’s <a rel="noopener" href="https://onlinelibrary.wiley.com/doi/10.1111/j.1758-5899.2010.00066.x" target="_blank">economic centre of gravity</a> will continue to shift eastwards at an accelerated pace.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174350/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a rel="noopener" href="https://theconversation.com/profiles/muhammad-ali-nasir-1244347" target="_blank">Muhammad Ali Nasir</a>, Associate Professor in Economics and Finance, <a rel="noopener" href="https://theconversation.com/institutions/university-of-huddersfield-1226" target="_blank">University of Huddersfield</a></em></p> <p><em>This article is republished from <a rel="noopener" href="https://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a rel="noopener" href="https://theconversation.com/world-economy-in-2022-the-big-factors-to-watch-closely-174350" target="_blank">original article</a>.</em></p> <p><em>Image: Getty Images</em></p>

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Why weather forecasts could become more challenging during the coronavirus storm

<p>The COVID-19 pandemic has disrupted several sectors and meteorology is no exception. The quality and quantity of the observational data that feed into weather forecasting models could well be affected by the pandemic, according to the <a href="https://public.wmo.int/en/media/press-release/wmo-concerned-about-impact-of-covid-19-observing-system">World Meteorological Organization (WMO)</a>.</p> <p>Knowing the state of the atmosphere is essential for good weather forecasting. In addition to announcing rain or sunshine, weather forecasts allow us to better prepare for risks and other weather hazards such as <a href="https://www.theglobeandmail.com/canada/article-communities-across-canada-prepare-for-doubled-crises-of-flooding-in-a/">spring flooding</a> and hurricanes.</p> <p>The pandemic has curtailed a number of these observations in a variety of ways. But scientists around the world are finding ways to fill some of those gaps.</p> <p><strong>International collaboration</strong></p> <p>The <a href="https://public.wmo.int/en/programmes/global-observing-system">WMO Global Observing System</a> provides observations of the atmosphere, such as wind speed, and the ocean surface, namely sea surface temperature. The system comes from the close collaboration between national and international agencies that provide measurements from different observing instruments.</p> <p style="text-align: center;"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://images.theconversation.com/files/330858/original/file-20200427-145566-1ccwtmw.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">The World Meteorological Organization’s (WMO) Global Observing System is composed of a large number of <em>in situ</em> and satellite observing systems.</span> <span class="attribution"><span class="source">(World Meteorological Organization)</span></span></p> <p>The <a href="https://public.wmo.int/en/our-mandate/what-we-do/observations">WMO Global Observing System</a> relies on observations taken on land, in the air, on the ocean and from space. More than 10,000 surface-based stations, 1,000 weather balloon stations, 3,000 commercial aircraft, 7,000 ships, 100 moored buoys, 1,000 drifting buoys, 30 meteorological satellites and 200 research satellites gather information about the Earth.</p> <p>The frequency and spatial distribution of these measurements vary enormously depending on the type of observation. For example, a surface weather station can collect precipitation measurements every five minutes, while the <a href="https://cloudsat.atmos.colostate.edu/education/faq">CloudSat</a> satellite, dedicated to global cloud observation, takes measurements covering the same geographical area every 16 days.</p> <p><strong>How forecasts are made</strong></p> <p>Atmospheric models are a set of equations that describe the changing state of the atmosphere. They require information about the initial state of the atmosphere and the Earth’s surface (land and ocean) in order to provide weather forecasts.</p> <p>Unfortunately, observational data alone are not sufficient to provide a complete picture of the state of the atmosphere because they are distributed irregularly over space and time, and sometimes contain errors.</p> <p>This is where a technique known as “<a href="https://research.reading.ac.uk/met-darc/aboutus/what-is-data-assimilation/">data assimilation</a>” comes into play. It involves combining observational data with data obtained from an atmospheric model to get the best estimate of the state of the atmosphere. In other words, one starts from a weather forecast made with the model and corrects it with the observational data.</p> <p>The result of the data assimilation is a coherent complete image of the atmosphere and the Earth’s surface at a given time. Once the initial state of the atmosphere and Earth’s surface is known, an atmospheric model can be applied to predict its evolution.</p> <p><strong>The impact of the pandemic</strong></p> <p>The COVID-19 pandemic has caused a <a href="https://public.wmo.int/en/media/press-release/wmo-concerned-about-impact-of-covid-19-observing-system">decrease in observations</a> made by commercial aircraft, due to the decrease in air traffic. In Europe, for example, there has been a <a href="https://www.eurocontrol.int/Economics/DailyTrafficVariation-States.html">90 per cent</a> decline in the daily number of flights.</p> <p>There has also been a drop in manual observations at surface weather stations in several developing countries, which have not switched to fully automated measurements. In the long term, other components of the observing system could be negatively affected if maintenance, repair and replenishment work cannot be done.</p> <p>Each type of observation has a different impact on the quality of forecasts. <a href="https://www.ecmwf.int/en/about/media-centre/news/2020/drop-aircraft-observations-could-have-impact-weather-forecasts">Studies</a> conducted by the European Centre for Medium-Range Weather Forecasts (ECMWF) have shown that in the absence of aircraft meteorological data, the quality of short-term wind and temperature forecasts at cruising altitude decreases by 15 per cent, which can affect the prediction of the jet stream and, consequently, forecasts of winter storms and heat waves. The quality of near-surface forecasts also decreases, but not as much.</p> <p>Ironically, the importance of aircraft observation data was highlighted in mid-February 2020 at an ECMWF <a href="https://www.ecmwf.int/en/learning/workshops/workshop-aircraft-weather-observations-and-their-use">workshop on the state of aircraft observations</a>. Fortunately, the impact of satellite observations on forecast quality is greater than that of aircraft meteorological data.</p> <p><strong>Mobilizing scientists</strong></p> <p>The scientific community is trying to ease the impact of the decrease in observational data collected by aircraft. As a result, European national meteorological services are <a href="https://www.ecmwf.int/en/newsletter/163/editorial/ecmwf-and-covid-19">launching more weather balloons</a>.</p> <p>Observations from recently launched satellites can also help to fill the gap left by declining observations. This is the case of the <a href="https://www.esa.int/Applications/Observing_the_Earth/Aeolus/COVID-19_Aeolus_and_weather_forecasts">European Space Agency’s Aeolus satellite</a>, which provides wind data at different altitudes.</p> <p>The declining quality of weather forecasts adds to the many challenges posed by the pandemic. With the <a href="https://tropical.colostate.edu/media/sites/111/2020/04/2020-04.pdf">Atlantic hurricane season</a> expected to be more active than usual, it is even more important to correctly forecast the trajectory and intensity of hurricanes. Indeed, for <a href="https://www.undrr.org/news/covid-19-risks-complicating-caribbean-hurricane-season">Caribbean countries</a>, where the peak of COVID-19 cases is expected just before the start of the hurricane season, the pandemic is a major obstacle in preparing for this meteorological hazard.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/137585/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><em><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></em></p> <p><em><a href="https://theconversation.com/profiles/marta-moreno-ibanez-819679">Marta Moreno Ibáñez</a>, PhD candidate in Earth and atmospheric sciences, <a href="https://theconversation.com/institutions/universite-du-quebec-a-montreal-uqam-2410">Université du Québec à Montréal (UQAM)</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/weather-forecasts-could-become-more-challenging-during-the-coronavirus-storm-137585">original article</a>.</em></p>

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