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5 risks for world economy in 2022

by Kerem Alkin

Dec 17, 2021 - 12:05 am GMT+3
A digitally generated image of abstract data on a purple background. (Photo by Getty Images)
A digitally generated image of abstract data on a purple background. (Photo by Getty Images)
by Kerem Alkin Dec 17, 2021 12:05 am

In the coming year, countries will need to pay great attention to these five risks; otherwise, the global economy will take a huge hit

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People shop and wait at a bus stop next to a campaign poster of Kemal Kılıçdaroğlu, the main opposition Republican People's Party (CHP) chair and presidential candidate of the Nation Alliance, reading "poverty will end" ahead of on May 28 presidential runoff, Istanbul, Türkiye, May 22, 2023. (AFP Photo)

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Currently, international economic circles have focused on the possible risks for the world economy and global trade during 2022. When we look at international articles and reports compiled by prominent financial institutions, it is clear that there are five main risks coming to the fore.

The first is the new coronavirus variant omicron and new closure decisions. After it was reported that the first patient died in the United Kingdom due to the variant, excessive restrictions, quarantines and complete closures at the border gates in many European countries have again appeared. It is said that some countries are now discussing putting measures into effect starting from Jan. 1 or Jan. 3 in 2022, especially considering the reactions to taking extreme measures before the Christmas holiday.

Many European countries, especially France, started to talk about returning to remote working conditions for two or three days a week. In the surveys conducted in many leading countries in the last six months on work life, it has been observed that even if the pandemic is over, people will demand that remote working continue at least two days a week. However, in the case of school closures and strict quarantine decisions, again this means the loss of income in the service sector all over the world, which is a risk that would highly constrain countries’ economy, growth, employment and public finance.

The consumer price index

The second critical risk is the high global inflation risk that is expected to continue until the mid-spring of next year. It is expected that the consumer price index (CPI) increase rate in the United States will reach 7% at the end of 2021 and will maintain this rate until the beginning of April. Although it is expected that the annualized headline inflation will start to decrease in a significant number of the G-7 countries as of mid-summer of 2022, the global inflation risk due to global commodity, agriculture and food, energy prices and logistics costs poses a significant problem.

Stagflation

This situation brings up the third important risk for 2022: stagflation. It is said that if the global inflation risk triggers a divergence of opinion among central banks, including particularly the U.S. Federal Reserve (Fed), the European Central Bank (ECB) and others, and “hawks” outweighs “pigeons” with their demand on the tightening of monetary policy, stagflation can be triggered with high inflation, heavy recession and high unemployment.

China-Russia concerns

The fourth critical risk could result from China and Russia. The most critical issue is the reluctance of the former, as the most important supplier country of global trade, to distribute raw materials, rare metals, intermediate products and final products that will respond to the needs of the world economy and its "loss of appetite" in terms of meeting those needs.

On the other hand, due to the possible steps Russia may take regarding Ukraine, the tension that will increase between Russia and the Europe Union and between Russia and the U.S. will undoubtedly affect regional and global trade, and the world economy as a whole.

The fiscal policy

Finally, the fifth risk is the narrowing of the fiscal policy of countries. Although Turkey is lucky in terms of budget balance and public debt stock, many leading countries have to shrink their budget deficit and slow the increase in public debt in 2022. This, in turn, may adversely affect the growth performance, employment and public social support opportunities of countries.

About the author
Kerem Alkin is an economist, professor at Istanbul Medipol University. He currently serves as the Turkish Permanent Representative to the Organisation for Economic Co-operation and Development (OECD).
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People shop and wait at a bus stop next to a campaign poster of Kemal Kılıçdaroğlu, the main opposition Republican People's Party (CHP) chair and presidential candidate of the Nation Alliance, reading "poverty will end" ahead of on May 28 presidential runoff, Istanbul, Türkiye, May 22, 2023. (AFP Photo)

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