Economic Outlook 2022-India & Global
Expect a full-fledged growth recovery with all drivers firing and macro stability indicators remaining in the comfort range. We believe that a pickup in investments underpinned by structural reforms will help to create a virtuous cycle of sustained high productive growth.
· GDP growth to gather steam with all components contributing positively
· Headline CPI to increase to around 5.8%Y in QE March 2022 as the base effect dissipates and the trailing impact of higher commodity prices feeds in.
· Gearing up for repo rate hikes from 1Q22
· Risks from external factors are skewed to the downside
Growth improves and inflation moderates, but central bank buying slows and rates rise. Own equities in Europe and Japan, securitized credit, and CAD/CHF, and resist buying Treasuries, US stocks, and EM assets until more is in the price.
More volatile equity markets in 2022
In the US, we see 10-year yields breaking above 2.00% by end-2022, with intermediate maturity yields underperforming the most.
Looking forward, the economic and political environment has been permanently altered from its pre-Covid days, although the changes are not necessarily due to the pandemic itself. Instead, we think that these changes began in 2016 with the populist wave that spread across many countries and ushered in a new era of de-globalization, social/wealth equality, and a generational shift from monetary to fiscal policy dominance – i.e., peak Fed. When thinking about the 2020 recession, we are still convinced that a recession was inevitable that year but was in need of a catalyst. The fact that the catalyst turned out to be a health crisis was fitting with respect to our longer-term views for rising inflation, wealth redistribution, and the beginning of the end of financial repression.