Outlook 2022

Pandemic effects to recede, policy starts to tighten

Outlook 2022: What you need to know about the year ahead

As we head towards the second anniversary of the COVID-19 outbreak, the virus remains a key concern for investors. While some countries are increasing vaccination rates, others are seeing new outbreaks - and late November saw the emergence of the new Omicron variant.  

Nonetheless, we expect major economies to continue their post-pandemic recovery. GDP growth in 2022 will likely be down on 2021’s rebound-driven numbers, but we still expect solid economic expansion.  

Any unexpected shocks could raise questions about the ability of the global economy to sustain its pace of recovery. The coming year is likely to see inflation remain a concern, while interest rates will start to rise in many major markets as central banks tighten monetary policy. 

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AXA Chief Group Economist, and Head of AXA IM Research, Gilles Moëc said: 

2021 was a year of fast decompression, with demand catching up quickly as economies reopened, exerting significant pressure on supply, triggering a consumer price rise not seen for decades. We believe 2022 will be a year of gradual absorption of the pandemic shock, with robust but less spectacular GDP numbers, as much of the catch-up is now behind us, and a normalisation of supply conditions allowing inflation to slow down. This would allow central banks to maintain a prudent approach to the pace of policy normalisation. 

It has become impossible to think about the macro outlook without considering the impact of the fight against climate change. An essential part of the process is to reallocate capital towards the sectors and businesses which are transitioning to a net zero economy – the investment effort needed to get there is going to be massive and is already becoming tangible, which we believe will bring a positive contribution to economic growth over this forecasting horizon already.

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Markets in 2022

Looking ahead, AXA IM CIO, Core Investments, Chris Iggo added:

COVID-19 will inevitably remain a challenge for markets. But rising inflation also remains a concern. We are now moving into a phase where interest rates are on the rise and this needs to be built into any investment outlook. But monetary policy tightening looks like it has been broadly priced in, and if actual rises are in line, then bond market losses should not be too significant.  

Equally, equity markets should be able to cope with modestly higher rates so long as corporate earnings keep growing. However, the strong corporate earnings experienced in 2021 look set to recede in 2022 as economic activity normalises. 

The bigger risk to investors is that inflation forces a more aggressive policy response from central banks. That could mean higher bond yields and wider credit and equity risk premiums. At the same time, the growing focus on sustainability will direct private capital into more and more green investments providing a huge tailwind for ESG driven investments well beyond the current concern about inflation and modestly higher interest rates.

Key regions and investment outlooks