What risks await the global economy in the new year? - LEVENT YILMAZ

What risks await the global economy in the new year?

2021, which we had predicted will be easier and overall better than 2020, turned out to be much more challenging for the global economy. Now as we ring in 2022 with a multitude of risks and uncertainties, ,it’s now more important than ever to predict the trajectory of the global economy, yet sometimes this proves challenging and I think 2022 will be one of those years where it’s hard to have clarity. Let's see what risks await us in the new year.


COVID19 AND ITS VARIANTS


The biggest risks in the new year will again be Covid-19 and its variants. Because the pandemic is still alive and well, particularly the Omicron variant that already poses a great challenge for 2022. Although it causes mild symptoms, Omicron is spreading much faster and the number of cases is skyrocketing. While some countries such as the Netherlands are already implementing full lockdowns, many countries are taking or preparing to take strict measures again due to the rising number of cases.


INFLATION


Global inflation will be with us in 2022 as well. Developed economies, especially the U.S., and developing ones, including Turkey, are faced with high inflation, and this time it is mainly caused by the cost channel and supply cuts. The world head dealt with demand inflation in the past, but the same can’t be said for effectively combating inflation caused by the cost channel and supply cuts. Meanwhile, anti-inflation policies and the monetary and fiscal policies implemented to reduce the effects of the pandemic on the economy run counter to each other. In other words, the fight against inflation will be anything but easy.


FOOD SECURITY


Thr United Nations Food and Agriculture Organization (FAO) defines the concept of food as follows: “the physical and economic access of all people to sufficient, healthy, safe and nutritious food at all times to meet their nutritional needs and food preferences necessary for an active and healthy life”. However, both the agricultural and trade policies implemented during the pandemic period and the drought that coincided with it caused global food prices to skyrocket. Meanwhile, the effects of climate change also bring significant risks in food production. To sump up, access to food will be relatively difficult in 2022 and rising prices will continue to keep consumers up at night.


US CENTRAL BANK (FED)


The U.S. Federal Reserve, which initially stated that inflation was temporary, removed the word "temporary" from its texts. This development signifies a change in the FED’s policy. 


Currently, the Fed is reducing its asset purchases. In fact, in December, asset purchases doubled the rate of reduction. Meanwhile, The bank revised its rate hike predictions to three times a year in 2022 instead of raising it just once as it had previously stated. Unfortunately, this is not good news for emerging economies like ours. Because it points to a period in which the Dollar Index increased more rapidly.


GREEN AGREEMENT


The world is trying to raise awareness about climate change with the aim of reducing carbon emissions. In this context, several countries have made a "zero carbon" commitment to combat global warming. 


However, this is easier said than done. Because such a transformation will take both time and simultaneously prove to be extremely costly. Meanwhile, the EU’s Green Agreement will make it difficult to sell products to the market in question. In this regard, Turkey has to urgently act.

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