In the wake of COVID-19, financial forecasters are naming 2022 as a critical year in which imbalances brought on during the pandemic will begin resolving themselves. But according to Morgan Stanley’s 2022 Economic Forecast, this correction will not be a return to business as usual.
Instead of a post-Global Financial Crisis environment of disinflation, poor capital spending and weak productivity growth, the economic and market environment in 2022 will be reflationary. Characterized by higher economic growth and higher inflation. And eventually, higher real interest rates.
“Investors need to be positioned not for a dearth of economic growth but an abundance of it.”-Lisa Shalett
Here are four trends from Morgan Stanley’s 2022 Economic Forecast that could further drive higher-than-expected growth and inflation, with greater capital spending and improving productivity:
During pandemic-related shutdowns, service businesses were forced to innovate digitally, spurring investment and an explosion in start-ups, as well as historic levels of public and private market activity—from fintech and cryptocurrencies to autonomous vehicles and artificial intelligence.
Supply-chain localization started before COVID amid U.S.-China trade tensions. Today’s inflation-driving supply imbalances and inventory shortages – not to mention increasing sensitivity around cybersecurity, public health, geopolitics, and shifting regulatory frameworks in China – have all added momentum to this trend toward domestic sourcing.
The pandemic and related business closures led to reduced fossil fuel consumption and carbon emissions and intensified pressure against investment in such energy sources. This is a reality that’s adding to cost pressures and could continue to support inflation levels.
Transformation of the U.S. Labor Market
A labor crunch driven by workplace safety concerns and accelerated retirements, coupled with employees’ seeking new leverage to change jobs or demand higher wages, could continue to drive higher labor costs for companies. This, in turn, could weigh on profit margins.
Expectations hold that the S&P 500 will become more volatile. The key to weathering the ups and downs will be more balanced allocations and increased exposure to real assets (like real estate). To research the options for increasing your real estate asset allocation, give our Dallas luxury home experts at Minnette Murray Group a call.