2022 Will (Hopefully) Be a Year of Recovery and Renewal for Economies and Businesses Affected by Covid-19

This article was originally?published?on?GT Perspectives.

"2021 was supposed to be a year of recovery for economies and businesses that had been affected by the coronavirus (Covid-19) pandemic," according to The Economist Intelligence Unit's annual?report?that examines the opportunities and challenges ahead for seven sectors of the global economy: automotive; consumer goods and retailing; energy; financial services; healthcare and pharmaceuticals; technology and telecoms; and tourism. "However, it has not been a straightforward rebound. Although coronavirus vaccines allowed many countries to ease lockdowns and begin a recovery, cases remained stubbornly high, albeit with an improved recovery rate. International borders remained either shut or subject to cumbersome testing requirements. One knock-on effect was supply-chain disruptions that hampered companies' ability to meet consumer demand, pushing up prices. Many of these problems will persist into 2022."

Businesses operating in these seven sectors should note that "[g]rowth prospects for all these sectors in 2022 will depend on their respective base levels. Some sectors—notably, telecoms and pharmaceuticals—thrived during the pandemic, but will need to navigate evolving consumer demands, as well as increased competition and regulation going forwards. Some sectors—notably, automotive and tourism—suffered slumps and will struggle to deal with the aftermath. For the remainder, the situation and outlook remain mixed, with companies pushing against headwinds to reach areas of opportunity."

The report presents the following key forecasts:

• Supply-chain disruption will make it harder for manufacturers and retailers to meet recovering demand, dampening sales forecasts for both consumer goods and automotive.
• High prices will push up interest rates, which could raise bad debt levels and dampen demand. However, some consumer companies and banks will turn higher prices to their advantage.
• New technologies - both digital and non-digital - will offer new opportunities, but will also attract more attention from regulators keen to ensure a level playing field. Health apps will be among those affected.
• Companies will need to prepare for changes in tax regulation, following a global deal to set a minimum corporate tax rate. Although this legislation may be derailed, efforts to collect taxes are increasing.
• Amid efforts to combat climate change, companies will come under more pressure to cut emissions and meet more standardized reporting requirements. This will affect their investment strategies, particularly in the oil and coal sectors.

In addition, below are the key forecasts as they relate to each of the aforementioned seven sectors of the global economy:

Automotive in 2022: back to near-normal

• Global sales of new vehicles will rise by 7.5% in 2022, taking them back past 2019 levels. The recovery will be led by Asia and North America.
• Many vehicle makers will still struggle to meet recovering demand amid continuing supply-chain disruptions.
• Global sales of new electric vehicles (EVs) will continue to soar, rising by 51%. New emissions rules will force carmakers to make far-reaching decisions about their fossil-fuel models.

Consumer goods in 2022: knots in the supply chain

• Global retail sales will recover to 2019 levels in volume terms, but coronavirus (Covid-19) cases, inflationary pressures and slow job growth will pose challenges.
• Online shopping will grow at a slower pace in 2022 as lockdowns lift, but will still account for 17% of global retail sales.
• Higher supply-chain costs will motivate businesses to wean consumers off discount schemes and focus on higher-margin premium products.

Energy in 2022: transition time

• Global energy consumption will rise by 2.2% as economies recover from the impact of the pandemic. All types of energy, apart from nuclear power, will benefit.
• Energy prices will stay firmer than in recent years, as demand recovers and supply bottlenecks continue to disrupt power generation.
• Many energy companies will need to undertake an urgent review of their strategies in 2022, as governments and investors ramp up pressure to cut emissions.

Finance in 2022: gusty tailwinds

• Economic recovery and rising interest rates will boost prospects for many financial firms in 2022, provided bad loans remain at manageable levels.
• Developing markets will take longer to regain their appeal than developed ones. Regulatory uncertainties in China will throw up challenges in the world’s fastest-growing market for financial services.
• Green finance will move towards center stage, as companies and investors try to live up to pledges made at the COP26 climate summit.

Healthcare in 2022: the aftermath of coronavirus

• Global healthcare spending growth will slow to 4.1%, despite rising costs, as governments start to assess the economic damage wreaked by the pandemic.
• Vaccinating the world against Covid-19 (coronavirus) will remain a core priority. However, healthcare systems will also need to start tackling a backlog of non-coronavirus care.
• Healthcare is not exempt from supply-chain problems, and governments will push ahead with regulation designed to increase resilience and lower costs.

Technology and telecoms in 2022: geopolitical tensions

• Of 60 major telecoms markets, 16 will launch 5G services in 2022 (see map below), but challenges in spectrum availability and pricing will cause delays.
• Technology and politics will continue to be interlinked. The semiconductor shortage will persist, making onshoring of chip production a strategic priority for countries.
• Governments will tighten regulations to boost cyber security, which will be the main short-term risk to digitalization progress, but discrepancies between countries will often dilute the impact.

Tourism in 2022: a shaky recovery

• International arrivals will recover some ground but fail to return to 2019 levels, with business travel likely to remain depressed.
• Differing levels of border control and variations in vaccine passports will continue to make international travel difficult in 2022, although domestic tourism will fill some gaps.
• Compliance with climate-change regulations, as well as higher fuel prices and wages, will increase air-travel costs in 2022. This will eventually lead to airline mergers, airport closures and higher ticket prices.

Lastly, with respect to its macroeconomic forecast, The EIU asserts that "the global economic recovery will continue in 2022, with real GDP expanding by 4.1% at market exchange rates, after rebounding by an estimated 5.4% in 2021. Of the G20 countries, China and Turkey were the only two not to shrink in 2020 and will continue to post firm growth. Eight more, led by the US, have already regained their 2019 GDP levels in real terms, following a strong rebound. The remaining ten, including EU countries and Japan, will regain pre-pandemic levels in 2022, having lost two years of growth."

The report, however, points out that the "recovery could still be derailed if the pandemic flares up again. Persistent supply-chain disruptions could keep commodity prices elevated. This will benefit commodity-dependent countries, but will fuel inflation. That, in turn, will lead to tightening monetary policy, with impacts on stock markets, banks, companies and governments. Geopolitics will remain fraught too: the EIU sees an escalation in US-China tensions as the biggest global risk."

Twelve months ago as we prepared to close-out 2020, my colleagues and I anticipated 2021 would be a year of recovery and renewal. While some sectors such as technology and pharmaceuticals have seen a healthy rebound, the automotive and tourism sectors struggled during the past year. And the consumer goods, energy, finance, and healthcare sectors had a mixed year as they seek out new areas of opportunity. In the coming year, we will be watching the global vaccination rate, the rise of any potential variants of covid-19, and how governments respond to new outbreaks. We will also monitor how governments and central banks continue their efforts to stimulate economic growth while curtailing inflationary pressure.

What will you be watching in 2022?

Aaron Rose?is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of?GT Perspectives, an online forum focused on turning perspective into opportunity.