Although major economies and markets fared well in 2021 despite all of the uncertainties surrounding new variants of the coronavirus, 2022 will bring new challenges. In addition to central banks shifting toward policy normalization, geopolitical and systemic risks are multiplying.

NEW YORK – Despite dips and disruptions from new variants of COVID-19, 2021 turned out to be a relatively positive year for economies and markets in most parts of the world. Growth rose above its potential after the severe recession of 2020, and financial markets recovered robustly. This was especially the case in the United States, where stock markets reached new highs, owing partly to the US Federal Reserve’s ultra-loose monetary policy (though central banks in other advanced economies pursued radically accommodative policies of their own).

The pandemic is not over. Omicron may not be as virulent as previous variants – particularly in highly vaccinated advanced economies – but it is much more contagious, which means that hospitalizations and deaths will remain high. The resulting uncertainty and risk aversion will suppress demand and exacerbate supply-chain bottlenecks.

Clouds Over 2022

In a pandemic, you can send people all the money in the world and they still won’t go out to dinner or book a flight, especially if those services are suspended by government fiat. A pandemic is like a blizzard: If people get a lot of money when the snow is falling, they will fuel inflation once it has been cleared.

STANFORD – Inflation continues to surge. From its inflection point in February 2021 to last month, the US <a href="https://www.bls.gov/cpi/" target="_blank" rel="noopener">consumer price index</a> has grown 6% – an 8% annualized rate.

 Inflation continues to surge. From its inflection point in February 2021 to last month, the US consumer price index has grown 6% – an 8% annualized rate.

The Ghost of Christmas Inflation

In this essay, professor Raghuram G. Rajan, former governor of the Reserve Bank of India, takes a look at China’s recent business crackdown and warns that it will deter innovation, private-sector risk taking and may deteriorate trust in key institutions.

CHICAGO – Is there a larger purpose to the Chinese government’s recent actions against the country’s largest corporations, and does its cleanup of the financial sector fit into its economic strategy?

A woman and child wearing masks pass by a screen displaying Chinese President Xi Jinping during the China International Fair for Trade in Services (CIFTIS) in Beijing Sunday, Sept. 5, 2021. An avalanche of changes launched by China’s ruling Communist Party has jolted everyone from tech billionaires to school kids. Photo: Ng Han Guan/AP/TT

Professor Raghuram G. Rajan takes a closer look at China’s recent business crackdown.

China’s Risky Business Crackdown

The developing world is particularly vulnerable to financial and inflationary shocks. With increasing inflation on the horizon the ”international community thus urgently needs to prop up developing economies’ international reserves in order to support their currencies and tame inflation risks” according to the economists Rabah Arezki and Jean-Pierre Landau.

ABIDJAN/PARIS – As the global economy begins to emerge from the COVID-19 crisis, managing inflation risks will be much more challenging in developing countries than in advanced economies. That reflects the nature of the shocks driving inflation and the fact that lower-income countries are ill-equipped to respond to them decisively. A combination of specific shocks and vulnerabilities could thus seriously threaten these countries’ economic stability and prosperity.

A vegetable market in Lagos, Nigeria, in April 2020. Photo: Sunday Alamba/AP/TT

The developing world is particularly vulnerable to inflation and monetary policymakers need to start to prepare for inflation now.