The economic predictions about 2021 during the Covid-19 situation didn’t come out to be as expected. Those who are willing to know about the economic risks have to know about the facts and events that can help predict the biggest economic risks of 2022. So, what will be the economic condition of 2022?

There’s so much going on right now affecting the global economic balance. Omicron and lockdowns, post-Covid inflation threat, Taiwan, Euro crisis, Brexit impact, Hunger risks all of these can come out to be the biggest economic risks of 2022. The OECD is saying that the main economic risk for the year 2022 is inflation. The growth of the global economy is expected to be 4.5% this year and in 2023 it’s going to be about 3.2%. Here we have analyzed the on gong events and gathered the biggest possible economic risks of 2022.

Covid-19 and Lockdowns

Covid-19 changed the growth speed of the global economy in the last two years. Many developing countries are still struggling to recover from the effects of this pandemic. Though Omicron, the new variant of Covid-19 is comparably more infectious, the death rate is less than the previous variants which might help the global economy to run normally as it was before covid-19. But when the world is breathing the air of relief, a more dangerous and infectious variant of covid-19 might occur and attack the global economy.

The long lockdown phrases from 2020 might come back. This will cause a lack of demand, Supply problems, workers losing their jobs, and a fall of the markets. As we already see lockdowns in some cities of China, we can predict major upcoming inflation. Covid-19 vaccines are still not available in many developing countries as per need. The big economic rulers like the U.S. and China are still not doing enough to distribute vaccines and other health supplies. This might cause more days of people locked inside their houses and more inflation. Without being able to control this Covid situation, it’s unreal to think of the global economic growth.

Shortage of Labors

When the 2nd pandemic came, almost 5 million workers left the job market in the USA. More than 4.4 million people left jobs on their own in September. Most of them are not willing to come back to work as they are concerned about the virus.

This will affect productivity and economic growth very intensely. Workers are not intending to join the workplaces as they are afraid of the pandemic. This results in the highest raise of wages in the last 20 years. These rising wages are causing more costs for production and supply. The product prices are going high. Thus, again inflation comes up. Shortage of labor is a concerning risk for economic growth in 2022 and more upcoming years.

Inflation

Though the inflation rate of the U.S. was predicted to be 2% in the year 2021, it ended with 7%. The experts are expecting 2022 to end with the target inflation rate but it can go otherwise. This drastic inflation can affect the GDP. With only 0.6% real GDP growth quarterly, it could go negative in 2022 but nominal GDP might stay positive. Covid-19 is just one reason for this inflation to occur. But there are several other potential reasons. The conflict between Ukraine and Russia might cause gas prices to go higher. The climate is changing dramatically. This is causing food prices to rise rapidly.

At just the beginning of the year 2022, the unemployment rate of the U.S. rose to 4%. The index indicates that the cost of goods and services rose to 5.4% than last year. Omicron and other upcoming covid-19 variants could drag down oil prices and central banks and other financial industries might fall into an uneasy situation.

Federal Reserve Policy

The Federal Reserve stated some policies to manage inflation. These policies can be a massive risk for the global economy. Inflation can’t be understood without being certain about the U.S. money supply growth.

These policies would control the market supply rates and the increased consumer demand and spending. The white house could control this inflation only by increasing taxes. The Fed still thinks inflation is the result of excessive demand and supply chain disruptions. To manage the inflation, the Fed would need to push the interest rates higher, and eventually, that’ll stop the economic growth.

Rising Food Prices

Hunger has always been a big reason for social turmoil. Food prices are rapidly rising because of the covid-19 outbreak, lockdowns, and the drastic change in the environment. The food prices are touching the highest rate this year. This could be higher in upcoming years. Hunger always has a negative impact on the global economy. The main asset poor people have is their physical capability to work. But when hunger strikes, many problems like lack of productivity, mental and physical breakdown occur. It causes a shortage of labor which hampers economic growth.

Hunger can cause protests and social disasters which will eventually lead the economic wheel to struggle to roll. In 2011, protests came up because of high food pricing. If we look at food imports of different countries, we can see many countries looking vulnerable as in 2011. This could be a major problem for the economic situation globally.

Political Inconstancy

The political unrest that’s going on between Taiwan and China can affect other powers of the world. The clash between the two biggest countries which keep the economic wheel running can be troublesome for the global economy. If it hampers the production of China or Taiwan, tech markets will crash as these are the top countries that develop almost everything from smartphones to even cars. If the U.S. and its allies fail to stay in harmony with China, then it would be a disaster for the trade market and global economy.

The opposition party of Turkey is trying to push the 2023 election to the next year. This could start an economic imbalance. The U.S. fiscal policy was slowing the economy last year. This can continue in 2022 but U.S. president Joe Biden’s clean-energy investment plans could solve the slowing down problem. Political leaders have to solve these problems or else there is no hope for the global economy to grow.

Supply Chain Problems

Because of the covid-19 pandemic, the supply chain was hampered which still didn’t recover properly in 2022. Industries and consumers are facing unavoidable problems because of this. Also, the businessmen need to focus on the other supply chain problems regarding the distribution of products around the world.

Many countries shifted their production regionally at the beginning of this pandemic. This might be seen as a big problem but it hampered domestic production. As a result, international supply chain problems occurred. If these production and distribution problems don’t get solved then these can affect the present and future economic growth.

The central banks have to wait till these supply problems get solved and then they would be able to do something to manage the inflation. As per the OCED, the global economy is expected to grow by 5.6% in 2022. If we look at the graphs of the economic growth of China, it came down to 5.1% where they expected 8.5% growth in 2023. We can predict the global economic condition by this.

U.S.-Russia Conflict

Russia has demanded NATO security and no more expansion of Eastward. But the frequent exposure of Russian troops and planes can cause an inconvenient accident. Russia is coming up with cyber-attacks and trying to interfere in USA elections. The U.S. is targeting the trade markets of Russia. Moreover, no betterment in Russia-U.S. relations can be seen. U.S.-Russia conflict would affect the international market which will cause more inflation and it will bring the global economic graphs down.

Brexit Impact

The full form of Brexit is “British Exit”. It affected the U.K. severely. Businesses were moved to the EU which slowed down the economic growth. Brexit impacted many job sectors. The uncertain outcome of Brexit causes damage to the U.K. economy. It made many young laborers jobless. By the year 2030 Germany will face a shortage of laborers.

The U.K. has to negotiate with many new trade agreements. These agreements include countries from outside of the EU. Brexit will also affect the markets of Ireland, London, and Scotland. This would cause major inflation.

Conclusion

The growth possibilities of the global economy are still uncertain. Covid-19 pandemic, political imbalance, risks of causing inflation, climate change, and other problems that are stated in this article will affect the economic growth worldwide.

Businessmen and political leaders have to come up with ways to manage this rising inflation. If they fail to solve these problems then the consequences that are about to come will affect the economic growth of upcoming years also.  The biggest economic risks that are discussed in this article have to be considered and overcome from local and also global perspectives otherwise the economic balance would fall to the ground.

Written By Rafsan Ahmed