THE RISK MANAGER Advanced Thought Leadership for Your Money®
Q4 2021 Economic Update
TRM ECONOMICS - Q4 2021 & GRAPHS
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In 2019, Global Economic Output (Gross Domestic Product or GDP) was recorded at $86.6 trillion. Despite expectations for a flat GDP (year-over-year) 2020 economic activity decreased 2.38% to $84.54 trillion. Current forecasts call for an estimated 5.9% growth in 2021 (to $89.53 trillion) and 4.9% in 2022 (to $93.92 trillion), bringing estimated short-term output to 6.08% (about 2 years in GDP average historical terms) below the $100 trillion expected in 2022 – prior to COVID-19. The most notable change here is the post-pandemic recovery in late 2020 and early 2021, which was previously expected to bring the global picture back to a $100 trillion estimate by 2022.
Considering the 2020 decline in GDP, relatively slow recovery in 2021, and the moderate growth expected in 2021 and 2022, investors would be wise to move from the bullish thinking of the 2009-2019 expansion, and to a mostly value‐driven approach to equity investing. Additional comments below underscore this point.
INFLATION & RATES
Inflation has a few primary drivers currently: 1) demand for goods exceeds supply, 2) commodity prices are higher, and 3) labor costs are rising. Expect global inflation increases to be temporary to mid-2022 (IMF, 2021), perhaps slightly extended in the U.S. if tax policy changes are enacted. Meanwhile, central banks in advanced economies have shifted their rhetoric to be less accommodative, laying the groundwork for gradual increases in short-term interest rates in the next few years.
UNCERTAINTIES UP AND DOWN
On the downside, uncertainties remain regarding 1) the extent and duration of inflation and 2) a slow labor market recovery in advanced economies (i.e., relatively low labor participation rate) – both reasons for a value-driven, active management approach. On the upside, a digital boom is possible for the global economy and represents the greatest growth prospect for corporate profits and productivity. Plenty of data support the possibility of this boom, including the short-term accumulation in human capital and robust top-line and profit growth in the technology sector (for advanced economies), and Infrastructure improvements in emerging markets (currently one of the least-favored global asset classes).
Will we have a global recession? Despite the 2020-2021 slow economic recovery, probably not. Will we have a boom in growth in these early years of the new digital economic era? Chances are good, and opportunists could adjust their portfolios accordingly. Might inflation and interest rates make navigation more difficult in the near term? Almost definitely. How can investors approach these issues? By leveraging today’s technology platforms to combine accounts into a global investment plan, retail investors can now access many of the same opportunities previously available to only institutions. For help with this process, consider a fiduciary-only firm that specializes in asset aggregation and risk-reward optimization. The right firm is also key to a transition into the new digital economy.
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Advisory Services through Fidere Advisors, LLC (dba FIDERE), a Registered Investment Advisor. Information provided has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making financial decisions and is for informational purposes only. FIDERE and its representatives do not offer tax or legal advice through FIDERE. Please consult the appropriate advisor.
THE RISK MANAGER consolidates current information into actionable content designed to help investors navigate risks in the current economic and market environment – from a conservative view. The larger purpose of this work is to optimize financial plans and bring the reader closer reaching long-term life goals.
International Monetary Fund (October, 2021). World Economic Outlook. Retrieved from: