In 2022 we will (hopefully) not be focusing on COVID impacts anymore. That probably does not hold for third-world countries. These economies will most likely be battling COVID till the end of 2023. A positive GDP outcome is expected for 2021 and 2022 by the International Monetary Fund (IMF). Supply and demand imbalances will continue into 2022. Oil prices will peak at the end of 2021 and will be hovering around USD 80 a barrel in 2022. Demand for natural gas will increase even more as countries will begin to phase out coal power plants. Supply chains will become shorter in the upcoming years, posing more concentrated, regional risks to companies.
According to the International Monetary Fund (IMF), the global economy is projected to grow 5.9 percent in 2021 and 4.9 percent in 2022. Projected growth, however, will mostly be dependent on whether new COVID variants will erupt around the globe. World Health Organization (WHO) predicts that the COVID pandemic will end by the end of 2022 in the most developed parts of the world – assuming no new aggressive variants will emerge, and a vaccination rate of 70 percent will have been reached. Sweeping the pandemic off the table, economies will again be faced with more traditional unknowns – inflation, commodity prices, trade balance, government policies, etc. On the other hand, the less developed countries will yet again be lagging – economically and otherwise – behind due to not having quick-enough access to vaccines. These countries will be fighting off the COVID pandemic until the end of 2023, according to WHO.
2021 started with a stronger GDP output than expected. Growth continued in the second quarter of 2021 – unfortunately, momentum weakened. Additionally, a significantly weak investment climate was present in the second quarter. Third-quarter GDP output was impacted by supply chain disruptions which persist today and are fuelling inflation rates globally. We believe supply bottlenecks, caused by demand and supply mismatches, will most likely still be present in the first half of 2022. Regardless, we can expect positive GDP growth for 2021 and 2022.
Rapid global economic recovery fuelled oil, gas, and metal prices. According to IMF, oil prices rose as much as 14 percent from February 2021 to August 2021. Bloomberg and IMF analytics speculate that oil will stay around 80 USD a barrel in 2022 and will (according to future prices) gradually decrease to around 60 USD a barrel until 2026. Natural gas spiked even much more in 2021. Prices have risen about 132 percent from February 2021 to August 2021. Increases in gas prices were most likely caused by depleted natural gas stocks after a harsh winter, transition to greener energy and a strong rebound in industrial activity across the globe. Demand for natural gas will most likely increase in upcoming years, as countries will begin to phase out coal power production facilities. Base metal prices were also buoyant in 2021. IMF however predicts that demand and supply will become more balanced. As a result, we can expect base metal prices to begin decreasing in 2022.
Supply chains will most likely become shorter in terms of distance between manufacturers and end customers in the upcoming years. Meaning, that we will be facing regionalization of global trade. A good recent example is Taiwan Semiconductor Manufacturing Company (TSMC) which was, according to CNBC, responsible for nearly one fourth of the world’s semiconductor output in 2020. TSMC is in fact building a new USD 12 billion chip fabrication plant in Phoenix, Arizona to be closer to its customers – such as Apple and others. As a result of regionalization, financial and other risks will become geographically more concentrated. On one hand, companies will be faced with less geopolitical tensions, while on the other hand, they will accumulate more regional risks that will have to be effectively managed. Relocation of production plants to more developed regions comes together with a stricter regulatory framework and higher operating costs. Hence, risk managers will have to be efficient when hedging and transferring risks.
From a perspective of credit risk, we believe that risks will become more concentrated which is rarely a good sign. However, offsetting embedded geopolitical risks, credit risks might on the other hand (at least for some) become somewhat easier to manage when closer to home. This being said, trade credit insurance cover supply will continue to be selective and limited as uncertainty of business environment will stay elevated, especially while fiscal and monetary support will largely be withdrawn. At the same time, it is important to note that schemes backed by Export Credit Agencies will most likely come to an end by mid-2022 (if even prolonged beyond 2021-year-end). Consequently, companies using these schemes around Europe will increasingly recognise the value-added of trade credit risk management specialists with access to a wide range of competitive products and commercial alternatives to COVID-era ECA covers.
This article was written by the team at ALPHA CREDO
International Monetary Fund (IMF) (2021): World Economic Outlook October 2021. Available here
Kaite Schoolov – CNBC (2021): Inside TSMC, the Taiwanese chipmaking giant that’s building a new plant in Phoenix. Available here