Will the world economy return to normal in 2022?

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The world economy, in many ways, is struggling to recover in the wake of the Covid pandemic. It essentially saw the globe come to a total standstill resulting in a supply chain crisis and rising demand. In the face of rising energy and transportation costs this winter, the burden on the economy has caused inflation to rise and growth to slow – but will the world economy return to normal in 2022? Express.co.uk speaks to several economic experts about whether the world economy will return to normal in 2022 or if a painful economic adjustment looms on the horizon.

Global trade in 2021 has been hit by a barrage of issues, including disrupted supply, excess demand, massive fiscal and monetary changes, rising energy costs and social distancing.

All of these factors combined have put undue pressure on the world economy.

Inflation is surging which has left many of the world’s leading economies at their lowest real interest rates in decades.

Central banks are delaying any abrupt tightening of the extra-loose monetary policies which were implemented to help countries weather the Covid crisis.

Many economic experts, including Chicago Federal Reserve Bank’s president, Charles Evans, and the European Central Bank’s chief economist, Philip Lane, have in fact argued the current inflation surge and rise in prices are transitory.

This week, Mr Lane told El Pais: “We believe that next year bottlenecks will ease and energy prices will decline or stabilise.

“This current period of inflation is very unusual, temporary, and not a sign of a chronic situation.”

The comments were made as inflation rose 4.1 percent year-on-year in October in the 19 countries sharing the Euro, rising from 3.4 percent in September.

The current economic struggles have been a result of a perfect storm of the post-lockdown reaction phase, supply chain issues, new order cancellations due to long delivery times and more, Mazars Wealth Management’s chief economist George Lagarias claimed.

Mr Lagarias told Express.co.uk: “Growth is bound to suffer more, in fact, as demand for goods might not be met by adequate supply.”

The crisis is especially acute across Europe and in Germany, where the latter is a manufacturing economy with its highest rate of inflation seen since the early ’90s.

All of these issues contribute to putting pressure on people’s individual finances, prompting a huge rise in the cost of living.

Jeremy Thomson-Cook, chief economist at international business payments firm, Equals Money, said growth is beginning to return to normal but not fast enough – especially as inflation is rising out of sync with wage increases, burdening workers, families and more.

Mr Thomson-Cook told Express.co.uk: “Inflation is determined by how much prices are rising.

“This is not an issue if wages are rising faster than prices, and therefore the cost of living remains relatively unaffected.

“In this environment, however, inflation is rising a lot faster than prices and so wage packets are not going as far as they used to.”

But will the world economy return to normal in 2022?

The experts agreed this is fundamentally a difficult assessment to pinpoint given the unpredictability of global trade flows.

However, Mr Lagarias told Express.co.uk: “We think that the probability of a full return to some sort of ‘normality’ before the end of 2022 at the earliest garners low probability.”

He added this dour assessment is due to supply chain problems persisting, because ports remain congested and transportation costs soar.

Demand and supply will continue to fluctuate wildly as companies continue to antagonise each other and raise prices to stock their inventories.

A slowdown in China, as a result of the Party’s attempt to reign in the growing power of businesses, is also expected to remain a key issue well into 2023.

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The buoyancy of the world economy is dependent on the individual sector, according to Mr Thomson-Cook.

He told Express.co.uk: “More people should be back in work, so sectors like hospitality and retail that may have struggled in the past year or so will be stronger.

“Wages should be higher too, but interest rates will be rising. Supply chains will remain stretched, and shortages will remain on supermarket shelves.”

Climate change and the environment will play a crucial role in the rate of recovery for the world economy, according to David Morrison, a senior market analyst at Trade Nation.

Mr Morrison told Express.co.uk: “While laudable, moves to cut emissions by eliminating fossil fuels completely over a short time span will prove very costly.”

He said there will be good opportunities, but will also likely be severe consequences to actions.

For instance, Mr Morrison said this can be exemplified in the lack of qualified car mechanics who understand how to repair electric vehicles.

He added: “With the accelerated move to take the combustion engine out of cars in a few years’ time, this will be a problem.”

If the world fails to catch up to these solutions, there will likely be further stagnancy and faltering in future.

Some experts believe the economy will recover, but fundamentally it will not look like it did before the pandemic.

Dr Tenpao Lee, professor emeritus of economics at Niagara University, said it is likely to be completely different.

Dr Lee told Express.co.uk: “Businesses will have new operating paradigms and rules.

“More people will work from their homes and e-commerce will continue to grow. New supply chains will thrive.”

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