This year will start with a whimper as headwinds, the coronavirus omicron variant included, weigh on growth. As the months pass by, these headwinds will likely abate, and I expect 2022 to end with a bang. From an investment perspective, I would characterize the year as tactical bear, structural bull.
Let's start with the structural story: Why do I hold a bullish view? When I observe the global economy, I see a large amount of pent‑up demand, especially outside the U.S., and output gaps that are still open. Financial conditions remain very accommodative, and, following a decade of deleveraging and recent fiscal largesse, private sector balance sheets are strong. The fly in the ointment is inflation, which has surged much above most peoples' expectations—and even above the expectations of those who say they always knew inflation was just around the corner. Consequently, this is an economy where, virus outbreak permitting, private demand can accelerate substantially.
The pickup in private demand will likely be supported by easy financial conditions and strong private sector balance sheets. The still‑open output gaps ensure that, although monetary accommodation is being removed, there is no need for policymakers to shift to a pace of tightening that threatens the business cycle expansion. However, as the year progresses and residual output gaps close, monetary policymakers will likely become increasingly assertive in their quest to tighten monetary policy.
This post was funded by T. Rowe Price
For professional clients only. Not for further distribution.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2022 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.