After two turbulent years dominated by COVID-19, the world economy started 2022 in good form and what appeared to be new strength and a degree of optimism. What followed in February was Vladimir Putin declaring war on Ukraine, triggering a global energy crisis that drove inflation and interest rates to unprecedented levels throughout the year and across most major economies.
By March, the rate of growth that January seemed to promise was becoming even more constrained when not only the Omicron variant closed Shanghai - the world’s largest container port, but the ongoing Ukraine invasion and subsequent Western sanctions sent the world and financial markets into turmoil with concerns of global food shortages and major world economies scrambling to find energy sources, using anything and everything they could find to try keep the lights on.
And while most countries saw COVID-19 restrictions become a distant memory by mid 2022, the world’s second largest economy, China, remained adamant about its zero-COVID policy with its most recent lockdown seeing as much as 25.1% being removed from China’s GDP. These figures eased to 19.3% as of last week, when restrictions were largely and finally lifted.
On the opposite side of the globe, years of political turbulence came to light in September for the UK when the independent Resolution Foundation calculated that the Truss government was responsible for roughly half of the £60 billion fiscal hole in which the UK finds itself in. A resignation soon unfolded which saw Liz Truss become the shortest serving PM in the history of the UK, leaving its economy in disarray and on the brink of another recession.
On a positive note, The South African economy advanced by 4.1% year-on-year for the third quarter of 2022, accelerating from 0.2% growth in the previous period and beating market estimates of a 2.8% increase - the strongest growth rate since the second quarter of 2021. We have also seen the local currency surge on hopes that President Cyril Ramaphosa would stay in power. The rand subsequently jumped 1.9% after South Africa's ruling party stopped an impeachment process from being launched against the President as most of its lawmakers voted to reject an inquiry report into alleged misconduct, to trade at 17.23 to the dollar.
The last 12 months has also seen the fastest increase in the Federal funds rates since 1981 and the fastest increase in European Central Bank (ECB) rates since the establishment of the Eurozone. But as consumer goods’ supply chains recover and labor markets see less friction, we could see a sharper and broader fall in inflation, which would imply a somewhat easier path for policy and higher growth globally in 2023.
Yet as the global economy continues to weather the blows of the ongoing Russian war as well as other constant macroeconomic headwinds along the way, we are still looking at a global economy with many strengths and a positive economic growth outlook for 2023. As always, the story varies by region - some more dramatic than others.