And 2022?

2020 was the year of the pandemic, and 2021, the year of recovery. It was before the Omicron variant came to overshadow a year 2022 that was placed under the theme of standardization.

The shock of the pandemic outbreak was followed by a year 2021 placed under the seal of economic recovery. On the labor market, then in the production of goods, to then spill over into the service sector, particularly battered by the restrictive measures. This return of the Services component to its pre-pandemic level was expected to continue at the start of 2022, with growth expected to be stronger than that of industrial production, which will dominate economic activity in the first half of the year. But Omicron has come to confuse the issue and stop this rebalancing.

The prevailing scenario, however, only evokes a delay in this catching-up, which must be followed by a trend reversal, with industrial production expected to take center stage again in the second half of the year. “The potential for growth is expected to accelerate once the distortions in supply chains have subsided,” writes Oxford Economics. In the meantime, companies will have been able to adapt their business model and strategy to engage more in automation, robotization and digitization, both in their business-to-business and business-to-consumer relationship, in particular in order to respond to the shortage of parts, the increase in the price of inputs and the shortage of labor.

In short, it is assumed here that the most felt effect of Omicron will be concentrated during the holidays, or even during the month of January, so that the COVID-19 episode then turns into an endemic. We resume the projection of Wall Street. “Investors have already made their judgment on Omicron and believe it will not have a significant impact on the economy,” said one analyst, who added: “A study found that the Delta Variant slowdown had cost 1% to US GDP; I think that for Omicron, it will be much less ”, one wrote on Thursday.

Accepting the assumption that Omicron’s impact on the economy will be mild and short-lived, and will not exacerbate disruptions to supply chains, standardization remains on the horizon. day of a 2022 agenda revolving around a response to the excesses of the health crisis that are the constraints affecting supply, the increase in the costs of raw materials and energy, real estate overheating and galloping inflation. In other words, the year that begins will be that of the rise in interest rates.

In the United States, the majority of the members of the Federal Reserve’s Monetary Committee are now forecasting three rate hikes of a quarter of a percentage point each in 2022, a similar scenario in 2023 and two hikes in 2024, which would push the rate forward. Fed target above 2%. In Canada, the central bank could make its first hike as early as March, believe economists at the National Bank, who expect the imposition in 2022 of five increases bringing the target rate to 1.5%, subject to change epidemiological.

For economists of the Mouvement Desjardins, the scenario assumes a gradual rise in key rates, of the order of 0.50% to 0.75% per year, “only if the inflationary pressures linked to supply constraints moderate as expected and if all of the yield curve reflects this upcoming normalization of monetary policy. Maintaining strongly negative real rates, particularly for long maturities, thus seems more and more incompatible with the objectives of central banks ”.

Inflation remains the key

The behavior of inflation therefore remains the key. For households, it is expected that the increase in savings resulting from the pandemic and that in wages resulting from the shock of supply and the shortage of labor will moderate the impact of the strong surge in price. On the other hand, the National Bank points out that the increase in remuneration in a context of labor scarcity and lack of productivity gain is reflected in a surge in unit labor costs, which can lead to a “de-anchoring” likely to fuel a wage-price spiral.

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