Outlook 2022: Peter van der Welle (Robeco)

Outlook 2022: Peter van der Welle (Robeco)

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By Peter van der Welle, Strategist at Robeco

What is the economic outlook for 2022?

‘We are moving towards a midcycle environment. Yet, above trend growth is expected in developed economies, underpinned by strong consumption growth and corporate investment. High net wealth levels of households, very low real interest rates and a rosy labor market outlook outweigh the negative impact of sticky inflation for consumers. The inflation debate will remain largely undecided as declining non-cyclical inflation due to ebbing supply side pressures will be largely counteracted by rising cyclical inflation, thanks to wage growth and rising rents.

The market environment will get noisy. The actual disconnect between macro-economic uncertainty and implied market volatility, and the discrepancy between the business cycle and the financial market cycle (midcycle versus late cycle), leave downside risk on the 12 month horizon. With both monetary and fiscal impulses on the decline, the rising tide that has lifted all boats in the post-COVID-19 recovery is receding in 2022, with industry, sector and stock selection effects becoming more important drivers of financial markets.

Geopolitical risk is elevated in the second half of the year with the 20th Chinese Party Congress likely emboldening president Xi’s nationalistic stance ahead of the US midterm elections. The Fed conveys to markets it’s comfortable staying somewhat behind the inflation curve as evidence of declining supply side pressures emerges. In reaction, the yield curve steepens somewhat in the first half of 2022, but we are more constructive on taking duration risk in bond markets as the Fed moves closer to the rate lift-off date in the second half of 2022. Corporate earnings could still surprise to the upside, sustaining stretched valuation levels in financial markets.’

The market environment will get noisy