WM issue 5

Christos Elafros, Head of the Global investment
Advisory Division, discusses the mid-year investment
outlook for 2022 with the team members.
recession. However, a global economic
recession is unlikely to unfold over the
second half of the year, as the monetary
and fiscal stimulus measures delivered
during the period of the pandemic were
significant enough to keep the global
economy afloat even this year. In the
end, persistent inflation and supply
shocks mean that growth will be below
the pre-COVID-19 trend.
Christos Elafros: Let’s start with Michalis
Lambrianos, the Chief Economic
Strategist of the team. It seems that the
global economy is facing some significant
challenges. How do you see the
outlook developing over the course of
the remaining year?
Michalis Lambrianos: After experiencing
one of its fastest paces of growth in 50
years, the global economy is set to slow
down sharply in 2022, as it faces significant
challenges from stagflationary forces.
Although the impact of the pandemic
is waning across most regions, its future
course remains uncertain in China, whose
zero COVID-19 policy is resulting in
regional lockdowns. The supply bottlenecks
initially arising from the pandemic
have now been exacerbated by the Russia-Ukraine
war. As a result, central banks
have made a dramatic shift in their policy,
as their mandate is strictly focused on reining
in inflation. Macroeconomic activity
is slowing and possibly veering toward a
Christos Elafros: The expectation at
the end of last year was that price
pressures would moderate in 2022.
Has this outlook changed?
Michalis Lambrianos: Inflation is
currently running at its highest pace
in over four decades. Moreover, it is
expected to remain high for longer than
the markets and policymakers were expecting.
The main factors shaping the
baseline inflation outlook are the spillover
effects from the high commodity
prices and supply disruptions resulting
from both the war and lockdowns in
China. The duration of these factors
remains unknown and has the potential
to sustain a high level of uncertainty in
inflation forecasting. Complicating matters
is the fact that the stagflation shock
is uneven across regions. In the US, the
energy shock is smaller, as it is no longer
a significant net importer of energy,
labour markets are tight. Wage growth
is rising in an attempt to catch up with
consumer price inflation and, therefore,
cost push inflation is significantly more
prevalent. In the euro area, energy accounts
for the vast bulk of the increase
in the HICP inflation rate since January
2021. The reason is the unhealthy reliance
on the supply of natural gas from
Russia. However, there is no meaningful
second-round effect on wages. Inflation
is much less of a concern for China,
since it has entered a slowdown and is
at risk of a recession. Τhe impact of these
exogenous shocks differs among emerging
economies, depending on whether they are
commodity net exporters or net importers
or net importers.