Opinion: Economy in 2022 – between despondency and a spark of hope | Comments | DW

One would like to write: everything will be fine. But it is not so simple. Who would have thought a year ago what problems we had to face last year – problems that, at first glance, have nothing to do with Corona. Let’s just take supply shortages and inflation. The terms “bottleneck” and “inflation” did not appear in business news as often as in the past year. It’s stuck in every nook and cranny. The car manufacturers did not have enough semiconductors, and the builders did not have enough wood. Conditions are sometimes reminiscent of the late East Germany and its pervasive economy of scarcity.

The soaring demand that has arisen as economies around the world awakened practically at the same time from the first corona shock has been met with limited supply. The last time the world economy experienced a so-called supply shock was in the 1970s – the keyword “oil crisis”. Meanwhile, the OPEC cartel tightened oil supplies in response to pro-Israel policies in the West. The price of crude oil has exploded, and with it the prices of all products made of crude oil.

Lessons from the oil price crisis

This led to massive price increases – and corresponding wage demands by unions to offset inflation in workers’ wallets. For example, in Germany in 1974 there was a public service subsidy of eleven (!) Percent. Such a wage and price spiral is also to be feared today. Because with enormous demand, coupled with soaring energy prices (another thing nobody saw on the screen a year ago), inflation that had been invisible for almost two decades returned to the headlines. The inflation rate in Germany is currently over five percent, which is therefore far from the two percent target of the European Central Bank. There is no improvement so far.

Henrik Böhme, editor of the DW section

So whether inflation can be brought under control will depend not only on the ECB’s monetary policy, but also on the upcoming wage negotiations. But there are still many other unknowns: For example, when will supply chains work as they did before Corona? Nobody can seriously predict this. One of the reasons is Beijing’s restrictive zero-COVID strategy. One corona-infected person in one of China’s huge ports is enough – and many of the millions of containers are stuck there for weeks. Or another gigantic container gets in the way of the Suez Canal – another thing that only happens when everything is already going wrong.

Something New: “Bottleneck Recession”

At the end of the year, the overwhelming majority of companies in Germany complained about supply bottlenecks – no improvement in sight. There is talk of a “bottleneck recession”. Optimistic forecasts sound different. For example, it is estimated that eleven million cars were not built worldwide last year because of a shortage of electronic parts. Can you just make up for it? I don’t think so.

Is there no good news at all? Yes, they are: let’s take the situation on the labor market. Consequently, throughout the year, the competent Federal Employment Agency reported a declining number of jobseekers every month. The demand for skilled workers was and is higher than the supply.

Business bankruptcies have even dropped to historic lows, possibly mainly due to generous stimulus packages. The stock index in Germany continued to climb to new highs – the corona crash in spring 2020 had long since caught up.

What’s next?

Unfortunately, none of this can guarantee that the good news will continue in the new year. The violent corona wave that swept through Germany in the fourth quarter made many people cautious. And what kind of havoc an Omicron can wreak is not yet entirely certain. Either way, the head of the employment agency reports that the outlook for the new year has clouded over. One by one, economic research institutes are lowering their growth forecasts for 2022. Creditreform experts believe that insolvencies are likely to increase, especially among small businesses, as well as in retail and catering.

Sooner or later, the European Central Bank will have to react if inflation itself does not return to normal. But whatever you choose to do in Frankfurt (raise interest rates? Reduce bond purchases?): Uncertainty has never been so great. When will supply chains improve? When will energy prices fall? Could there be an even worse variant of a new crown with another shockwave?

Everything will be fine. Just when, that remains the big question. Also for 2022.

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