Sébastien Laye is an entrepreneur and associate researcher at the Thomas More Institute.
A balance sheet only makes sense if, behind the scum of the figures and the findings, we detect the major trends at work: these brazen forces of 2021 will continue to be exerted in 2022, and bring into play the - unstable - beam of the economic scenarios of the Covid-19 crisis exit.
Our thesis, for 2022, will thus be to detect the lineaments of a year of normalization after a year of exuberance (more in the financial markets than in the real economy unfortunately), but an unstable normalization fraught with threats, bearing the seeds of possible new seizures or fractures in the second part of the year.
For France of course, the political question of April could play a role (especially in the event of bursts of new reforms), but evacuating the monetary and international context would be suicidal for any potential new team at Bercy for example.
It is not certain that growth will be strong enough in 2022 and 2023 to fully offset the losses from Covid-19.
Sebastien Laye
After a global collapse of GDP in 2020 due to confinements (-3.6% for the world, -4% / - 5% for the most solid Western countries like the USA or Germany, but -8.3% for France or -9% for Italy), 2021 was marked by a mechanical rebound in global growth. At the end of this exercise, while some countries such as China and then the United States not only recovered their pre-crisis GDP levels, but also fully compensated for the normal growth of 2020-2021 outside the Covid-19 scenario, others in Europe especially with France will only recover their GDP from December 2019 over the next few days. Which means that for us, the growth gain in 2020 and 2021 has been lost, maybe definitively: because we will see it, it does notis not certain that growth will be strong enough in 2022 and 2023 to fully offset the losses from Covid-19. Indeed, with the rebound of 2021 (we expect between 6.5 and 7% in France), the “easy” post-crisis growth seems to be coming to an end.
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So forecasters like Rexecode revise their numbers quickly and frequently these days. Germany will not exceed 3% in 2022, and France is expected at 3.7%. Like Rexecode, we expect French growth of more than 3 / 3.5% in 2022 (but with a contribution of 2/3 over the first half of the year) then less than 1% in 2023 (the consensus was still more than 2 % a month ago…). The mechanical rebound in growth after confinement is largely behind us, and does not in itself create the conditions for long-term growth. The reinvestment plans of the various governments are rather disappointing: they are not focused enough on infrastructure (except in the United States) and are slow to materialize: in France,they are often barely disguised traditional public spending plans, with no return on investment for our GDP. Worse, the very nature of central bank interventions in 2020 and 2021 has led to new imbalances that will hamper global growth in 2022.
We will of course cite inflation, which by devastating purchasing power and limiting the upward adjustment of production devices, places a natural ceiling on our post-crisis growth: already 6.7% annualized in the States. United, inflation reached 5% in Germany and 4% in Europe. France measures it at 2.8%, with an outdated statistical apparatus: it should be 3.5% / 4% on average next year. It will be a formidable challenge for the political teams as nominal growth does not exceed this level of inflation.
Thus, this theme of inflation and purchasing power, and therefore the normalization of monetary policies, will monopolize our leaders and ministers of the economy in 2022. This will be the main subject of the next G7 in June in Bavaria, and we can count on the Germans and their very ordo-liberal new Minister of Finance to impose this agenda. There were, if we try to take stock of the economic year 2021, two big surprises: the Chinese repression against economic freedoms with a vigorous political takeover (yes, liberal capitalism is far from dominating the planet) , and the error of the Fed and the ECB, the two central banks which denied any inflationary risk until a few days ago. It is always complex to fight against what has been brazenly denied theexistence for many months. Not that we are in the 1970s - yet - since inflation has matched good levels of employment and growth in 2021, but it is coming to an end in the United States. And France will be in the same position next summer, without real levers for growth and job creation.
The Fed has understood its mistake and will begin monetary normalization in 2022 with a halt in asset purchases and maybe one or even two 0.25% rate hikes, where the ECB will likely procrastinate for a good part of the year: the start of monetary normalization in Europe will not be before 2023: unless the sharp slowdown in growth or even a risk of recession kills inflation and therefore any rate hike in the bud. In the United States, after one or even two rate hikes, we should already be in a schedule concomitant with a slowdown (already at work in China, for example): the Fed will therefore not really have time to do 4 or 5 rate hikes as planned. We will have a recession long before a sharp rise in rates, as they are likely to stabilize, ifinvolving ten-year Treasury bills, to 2.25% in the US and 1.5% in France during this first part of the decade.
Read also What awaits the French in terms of the economy in 2022
In addition to inflation, governments will also begin to try to restore the balance of public finances. This exercise, necessary in the face of the crazy inflation of budgets (another budget voted 5% deficit in 2022 in France after 8% in 2021 and almost 10% in 2020), will therefore reduce public support for growth from 2023. Until then, can investment plans take over from general budgets? We believe that only the US and China currently have smart infrastructure plans. The French so-called stimulus or technological plans will not thwart the headwinds to growth, unless a new team at Bercy takes up with more finesse this question of a real French public-private infrastructure plan.We must not exclude either good news in terms of structural reforms in the event of a change of political team: a real pension reform, a massive reduction in production taxes, a real administrative simplification, the establishment of a little funding for our pensions… If these reforms are executed well, they will allow us to keep growth above inflation and in largely positive territory in 2023 and 2024.they will allow us to keep growth above inflation and in largely positive territory in 2023 and 2024.they will allow us to keep growth above inflation and in largely positive territory in 2023 and 2024.
The sustainability of these bubble phenomena (and the runaway inflation) in 2021 is worrying, as if the world did not manage to get out of the crisis.
Sebastien Laye
With constant monetary support, 2021 was the year of rational exuberance on most asset markets: real estate, LBOs, but also and above all, on the stock market, where Nasdaq or Tesla values escaped all rationality, so that the new Bitcoin El Dorado has supplanted gold as an alternative value to a financial system whose stability and credibility no one buys anymore.
The sustainability of these bubble phenomena (and the runaway inflation) in 2021 is worrying, as if the world did not manage to get out of the crisis.
The essential question is therefore that of the correction of valuations, and of the catalyst for this correction: hyper-inflation out of control? An economic slowdown? A rate hike? Historically, surprise rate hikes (under pressure from inflation) do not in themselves create crises, but undertake corrections: if the rate hike takes place while the economy begins to slow (to only stem the inflation), it is generally this combination that produces financial crises (as in 2007).
Thus, the sooner the first rate hike arrives in 2022, the more the risk of a financial crisis will disappear. In 2021, governments had it easy with central banks supporting all their spending, when most of the health crisis had passed; in 2022 they will be scared by the consequences of this mismanagement, by seeking remedies in the face of various risks: inflation, slowdown, social crises of purchasing power…. The latest variants, like Omicron, do not send us back to Spring 2020 and do not create major disruptions in our economies, other than the most coercive health measures decided (undoubtedly decorrelated from the reality of the threat). It is therefore time to get out of any exceptional economic regime.But the dream merchants - who sometimes govern us - have they taken the measure of the instability of our economies at the beginning of the year? Nothing is less sure.