Russian inflation keeps pace in November, private sector rebounds slightly: macro snapshot

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LONDON: From the great containment, to the great rebound? At the start of this year, the world was optimistic that the development of pioneering vaccines would restrict the global spread of COVID-19. December 2020 marked the date that vaccinations against the virus began to be given around the world. The death toll has since tripled according to the World Health Organization.
While the vaccine was never going to end the pandemic, the hope was that it would contain its spread and that global trade and finance could resume unhindered.

The vaccine inspires confidence
However, as the inspiring confidence in vaccines returned in 2021, an increase in demand exacerbated the disruption of the supply chain before the pandemic. Inflationary pressures in the supply chain have been driven by global energy prices. The price of a barrel of Brent crude oil started in 2021 at $ 50 and reached $ 85 in October.

Energy crisis

The surge in natural gas prices that month was more significant. The European TTF, the benchmark for wholesale gas, hit a record € 137 per megawatt hour in October, an increase of over 75%. In Asia, LNG prices have exceeded the equivalent of more than $ 320 per barrel of oil.

Rising gas prices, especially in Europe, have been exacerbated by a drop in exports from Russian Gazprom, in part caused by regulatory issues with its Nord Stream 2 pipeline, which is expected to double gas deliveries to Germany but bypassing Ukraine. Against the backdrop of current geopolitical events between Russian President Vladimir Putin and the West, another spike in gas prices is expected to occur in the first quarter of the new year.

Supply chain crisis
Meanwhile, the supply chain crisis has brought to light the system of outsourcing production across the world and just-in-time delivery. In March, the container ship Ever Given became the most famous ship since the Titanic when it got stuck in the Suez Canal for six days.
Lloyd’s list estimated that Ever Given withheld around $ 9.6 billion in trades for each day it was blocked. Estimates suggest the stricken ship lost up to 0.4 percentage point in global trade growth.

Global inflation
While the sharp rise in global inflation was initially seen as transitory and attributed to a temporary mismatch between demand and supply as economies reopen, price pressures now appear to be more. anchored and will be the unwanted giveaway from 2021 to 2022.
The other big problem for global economies, especially Gulf oil producers, in 2021 was climate change.

COP26
In August, a UN report warned in blunt terms that governments around the world must do more to tackle climate change and reduce greenhouse gas emissions.
Even the International Energy Agency has warned investors to stop funding new oil and gas projects to ensure the world reaches net zero emissions by 2050.
The United States and China lead the global emissions rankings.
However, as US President Joe Biden brought America back to the Paris Climate Agreement and China agreed to stop funding overseas coal-fired power plants, carbon emissions have increased in 2021 as economies recover from the first phase of the pandemic.
At the critical UN climate conference of COP26 in Glasgow in November, countries pledged to take action to tackle climate change, but intentions were far from being implemented.
While President Biden warned COP26 of the need to end fossil fuels, he also called on OPEC to pump more oil as U.S. gasoline prices hit record highs, pushing the US inflation to 40-year highs. Meanwhile, China has increased its domestic production of coal.
COP26 ended with a rather weak commitment to “phase out” coal energy and end “inefficient” fossil fuel subsidies.

The SPR effect

Days later, Biden authorized the release of 50 million barrels of oil from the U.S. strategic reserve into its home market and pledged to release more to lower energy prices.
Instead of pushing prices down, the publication pushed crude higher in the near term.
In short, while support for the 1.5 ° C limit has received new political backing in 2021, it looks like it will remain out of reach in 2022.
However, climate change continued to impact oil and gas, as environmental, social and governance issues and other pressures weighed on the industry, causing investment to drop by more than a third in the world. A report released this week by Rystad Energy also found that global oil and gas discoveries are on track to hit their lowest annual level in 75 years if the closing weeks of 2021 do not yield significant discoveries.

Capital markets
Another highlight of the global economy this year has been the overall strength of capital markets despite the pandemic.
In November, in the United States, the Standard and Poor’s 500 Index and the Dow Jones Industrial Average hit all-time highs, as did the highly technical NASDAQ. Rising prices for oil and mining stocks also pushed the FSTE 100 blue chip higher this year. The sharp rise in oil prices also boosted Saudi Arabia’s Tadawul All Share Index, which has risen by more than a third this year. The Kingdom’s good performance also boosted the broader MSCI GCC country index. The index, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, increased by a similar amount during the year.
Strong equity markets have been key to global mergers and acquisitions, which hit a record high in 2021, surpassing $ 5,000 billion for the first time. M&A volumes soared 63% to $ 5.6 trillion on Dec. 16, according to a Dealogic report, well above the pre-credit crunch record of $ 4.4 trillion in 2007.
Part of the reason for this increase was pent-up demand last year, when the pace of mergers and acquisitions fell to its lowest level in three years.

Crypto market
And 2021 was also the year the crypto market came of age. After a roller coaster year, the total value of cryptocurrencies jumped to $ 3 trillion last month, led by Bitcoin.
Looking ahead to 2022, the pandemic-fueled easy money policy, the hallmark of global economic support in 2021, is finally set to end in 2022.
The economic outlook is now dominated by the impact of inflationary pressures and increasingly tight monetary policy, as well as uncertainty around omicron, all of which could hold back economic recovery around the world.
Central banks, most notably the Federal Reserve and the Bank of England, have signaled that persistent high inflationary pressures will lead to higher interest rates over the coming year. The Bank of England recently raised its key rate from 0.1% to 0.25%. The US Fed has indicated it is targeting three rate hikes next year. The European Central Bank is also moving to a stricter policy, albeit more gradually.

Inflation
Inflation in the United States is currently 6.8 percent, in the euro area as a whole it is almost 5 percent. In Germany, the largest economy in Europe, it is 6% and in the UK 5%.
Central banks are expected to cut debt purchases next year by around $ 2 trillion in the four major advanced economies. JPMorgan estimates that demand for central bank bonds in the United States, United Kingdom, Japan and the euro area will fall by $ 2 trillion in 2022, after a reduction of $ 1.7 trillion in 2020.
The reduction is needed after an International Monetary Fund report released this month noted that 2020 saw the biggest year-over-year debt increase since World War II, with a total reaching $ 226 trillion. Government borrowing was more than half of that figure.

The IMF report reveals that global debt has increased from 28% to 256% of global production.
The most striking figure, however, against the background of tighter monetary policy, is the increase in private debt, which accounts for 178% of global gross domestic product. As interest rates climb, global defaults could increase next year, especially as the rise of the omicron COVID-19 variant, as well as the Delta variant identified last summer, have already seen Governments around the world impose new restrictions on economic activity.
Against this backdrop, the chances of another lockdown and delayed rebound are dwindling day by day.
Berenberg’s chief economist Holger Schmieding now expects a 1% quarterly decline in euro area and UK GDP in the first quarter of 2022, revising earlier growth forecasts downwards.
Suddenly, this year’s bullish growth projections of a global recovery made by the IMF of 5.9% this year and 4.9% in 2022, are starting to look very optimistic.


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