Top 10 Economies to Watch in 2022
By: Kurt Davis Jr.
Tags: South Africa, China, France, Saudi Arabia, Brazil

Vaccines gave hope going into 2021…fast forward a year later and the omicron variant is not providing the same confidence, especially with much of the globe still not fully vaccinated and / or without a booster shot.

Such a reality has created renewed economic uncertainty. As we enter 2022, there are several countries whose economic trends will provide some insight into the global economy going forward.

South Africa

Omicron, travel bans, and bad luck…things must change in 2022?

The IMF forecasts sub-Saharan Africa to grow 3.8% in 2022, but that number does not capture the reality of Africa’s largest economies, especially in South Africa. Angola and Nigeria can blame oil demand and prices…South Africa, however, will largely be staring in the mirror.

Years of mismanagement of government funds and entities have led to today’s reality with power blackouts undercutting economic growth, particularly in the mining sector, and the last of foreign investors constantly contemplating their exit from the country.

Covid-19 has not helped the economic situation with unemployment north of 30% and riots bringing Johannesburg to a standstill back in July. The discovery of Omicron by South African scientists also troubled the country. No good deed goes unpunished (so they say) as the world implemented travel bans and devastated South Africa’s tourism industry before it could kick-off the busy season. In 2022, tourism will sadly remain at the mercy of the world’s ability to navigate covid-19, which is looking less and less promising as the holiday season in many countries hit full stride with a mix of various lockdowns and curfews.

South Africans will be looking to mining AGAIN in 2022 to formulate any form of economic recovery. But it is hard to imagine similarly record-high commodity prices. For example, platinum group metals, such as palladium and rhodium, topped $2,950 and $30,000 per ounce respectively in 2021 as compared to prices below $2000 and $8,000 in May 2020. According to the Economist, South Africa last had economic growth of 6% more than 40 years ago. A year of sustained quarterly growth would be welcomed and a sign that things are changing for the better…yet that may also be too high of a bar.

Mexico

In need of a stimulus plan and better supply chain access…

It is easy to forget how bad 2020 was for some countries. For example, the Mexican economy contracted more than 8% in 2020. In some odd irony (or mishap), the administration of Mexico’s President Andrés Manuel López Obrador is constantly touting 6% “economic growth” in 2021. But the truth (or math) behind that 6% is that Mexico has a long way to go to return to pre-pandemic GDP levels.

The economy slowed in Q3 2021 with the Mexican industrial sector growing only 0.3% in Q3 2021, compared to 0.4% in Q1 and 0.8% in Q2, according to Deloitte. The rising prices of raw materials and constant disruption in global supply chains continue to undercut the industrial sector and the greater economic recovery in the country, such that the 6% economic growth in 2021 may be an overstatement.

The forecasted 3.3% economic growth in 2022, according to the IMF, also looks fragile. Obrador’s reluctance to spend too much money during the pandemic, however, suggests his administration could pump more money into the economy today to lift economic growth prospects going into next year…Mexico earmarked about 2% of GDP to pandemic relief while Latin American, on average, allocated 8.5%. Still, Obrador’s team will have to be quite crafty to create a stimulus plan to spark the economy while not triggering an inflation issue and avoiding the boobytraps of increasing interest rates. That is easier said than done, especially when social programs are political footballs and raising tax revenue is not exactly easy in Mexico.

China

It is not Japan in the 1990s but there are underlying problems…

Japan, in the 1990s, endured a prolonged recession following an economic bubble in the 1980s. The stories of the Japanese economy eclipsing the American economy quickly evaporated into the well-documented “lost decade,” which involved a recession accompanied by a financial crisis and excess debt.

There are some similarities to China. The Chinese struggled in the third quarter of 2021 with annualized economic growth dipping below 1% — still above 0% but far from the 6–8% that the world is accustomed to with China. The collapse in the real estate market choked off economic growth while repeated lockdowns (via China’s “covid zero” approach) seemingly created a few economic false starts for the country. An energy crisis is only further fueling the problem as coal and natural gas prices hit record highs.

Yet Chinese Vice-Premier Liu He says China is on track to beat its GDP growth target of ‘above 6%’ this year. If this is true, then maybe China has the resiliency to stabilize the economy and maintain growth within a reasonable range, as characterized by Chinese leadership. Some economists forecast a period of stagflation, which may be an overstretch based on the Q4 numbers to date. On the other hand, forecasting more than 6% economic growth sounds brazen in today’s market for China. Maybe 3% or 4% is more reasonable…but then again China growing at 3% will likely mean a downturn in commodity prices due to shrinking Chinese demand and a general global slowdown (as China’s economic growth is a driving factor for demand and supply numbers in various markets across the globe).

Brazil

It is election time…

“I’m back!” recently announced Brazil’s former President Luiz Inácio Lula da Silva…It is not clear if we should be watching Brazil because of its politics or its economy. First, the general election will be held on October 2, 2022. The return of former president, Luiz Inácio Lula da Silva, continues to be the backdrop to any decision by current President Jair Bolsonaro, except, in 2022, there could be actual consequences at the ballot box.

Lula’s overshadowing presence helps to explain Bolsonaro’s economic decisions. His pandemic relief programs, which included monthly payments of R$600 to roughly 68 million Brazilians with single mothers receiving roughly R$1,200, are not exactly the conservative federal spending championed by Bolsonaro in his campaigns. The spending may have helped Brazil in 2021 with economic growth still tracking for more than 5%.

However, the outlook for 2022 appears grim with economists at Latin America’s largest bank, Itau Unibanco, forecasting a potential recession at negative 0.5% growth. The change to negative 0.5% growth in 2022 reflects aggressive actions taken by the Brazilian central bank to hike benchmark interest rates. Itau imagines the rate could climb to 11.25% as the central bank focuses on controlling inflation. The interest rate hike will puncture an already fragile recovery. Another wave of covid due to Omicron or any other variant thereafter could effectively undue the recovery altogether with less than 50% of the Brazilian population fully vaccinated.

The economy and early polls suggest Lula has a good chance to retake the presidency. But Brazilians sadly must be asking if that will change the country’s situation. The economic challenges coupled with covid-19 are not resolved by simply changing presidents…Lula’s supporters can ask supporters of President Joe Biden about the process of escaping the covid-19 malaise.

Saudi Arabia

More than oil…

Saudi Arabia’s Oil Minister Abdulaziz bin Salman is warning of a potential energy crisis because investment in oil is dropping, which could create a supply deficit over the long-term. Critics will say the message and warning is self-serving for a country that has built it wealth on the back of healthy oil prices. That said, the International Energy Agency forecasts 2030 oil demand to remain steady with pre-covid demand in 2019 (approximately 100 million barrels per day). The Saudi oil minister imagines production could fall by 30 million barrels per day to 70 million barrels per day. If true, all these numbers bid well for the kingdom and it oil reserves.

But it is not only oil that has political and economic analysts paying close attention. Saudi Arabia forecasts 7.4% economic growth in 2022 (after 2.9% this year) along with its first budget surplus since 2013 (when average closing price for oil was nearly $98 per barrel). The oil crash in 2014 wiped out Saudi budget surpluses. This time, Saudi leadership will deliver a surplus without $100 oil. Also 2022 is likely not 2013 where economic growth was strong in China and the U.S.

To achieve this surplus, the world’s biggest exporter has, in the words of Finance Minister Mohammed bin Abdullah Al-Jadaan, decoupled government expenditures from revenue. Saudi leadership is reducing military spending after already reducing social expenditures during covid last year and simply sticking the extra cash in the government reserves. The budget does depend on an oil price of $70 per barrel. That number itself will be an indicator of global supply and demand across various sectors. A striving Saudi economy irrespective of the price movement will say a lot more about the changing GCC and regional economic ingenuity amid a pandemic, oil price uncertainty, and not exactly ideal political harmony (for example, good relations with Israel have been offset by more strained relations with Iran).

Thailand

How quick can tourism ramp up?

Southeast Asia’s second largest economy was on the list last year because it was a question of when tourism would return. Going in 2022, the question is how quickly can tourism ramp up? Most studies suggest that tourism in Thailand will not return to pre-pandemic levels until 2024. And that number assumes there are no major travel shutdowns and there is steady tourism mixed with overall economic growth across the globe. The omicron border closures and restrictions (including the re-tightening of the Thailand entry rules) are a perfect example of how vulnerable that trajectory could be with new variants.

Thailand is expected to grow 3.5% to 4.5% in 2022 following an estimated growth of 1.2% this year. The 1.2% looks partially promising, considering passengers on international flights to Thailand were down 95% in September 2021 compared to 2019 and hotels only filled 9% of their rooms, according to a study by McKinsey & Company. Optimism nevertheless can only go so far…finding a way to get people on a plane to Thailand should be the major focus and may require being creative with other countries on how to ensure individuals can travel cross-border and be properly tested such that both resident and host countries feel secure. Thailand can rest assured other Asian countries will be watching their efforts.

United Kingdom (UK)

Despite the covid news, steady growth endures…

The UK is the darling for covid jokes…it has struggled to control its cases as well as the narrative around its approach. When the country’s pandemic restrictions, including social distancing and masks requirements, were lifted in July, supporters and critics alike of Prime Minister Boris Johnson were concerned. To be fair Johnson’s announcement on July 19th was only about two weeks after Johnson’s American counterpart, President Biden, declared victory against covid. Today, both may regret their summer optimism and messaging. Requiring individuals to course-correct on behavior, i.e. return to previous measures such as masks, is easier said than done as people are rightfully frustrated about the situation.

Putting covid aside, the UK economy appears rather resilient. GDP growth is still expected above 6% for 2021 and, while accounting for a slowdown next year, GDP growth is expected to be about 5% in 2022. The economy should also reach pre-pandemic levels in the first quarter of 2022. That said, inflation remains an issue as UK inflation hit a 10-year high in November at 5.1% and may hit 6% by April 2022. The Bank of England took a major first step in fighting inflation with the recent interest rate hike from 0.1% to 0.25%. If the UK can control covid-19 numbers and steady inflation, then credit should go to Johnson. But then again, he may have already lost the narrative on that story despite what looks like a relatively positive outcome.

France

Let’s see how Europe fares…

The French economy is going strong into 2022 with economic growth expected to be more than 6% in 2021 and north of 4% in 2022. Following the lifting of the lockdown in May, the French economy benefited from a successful vaccination program, i.e. going from about 15% in May to more than 70% today, and pent-up enthusiasm for consumption. Household consumption grew 5% between the 2nd quarter and 3rd quarter of this year.

France will not have similar numbers to end the year or in 2022 as the same favorable conditions do not exist. There is not a similar level of pent-up consumption waiting to be released and covid-19 numbers are increasing. Supply chains also remain fractured which has notably hurt French manufacturing, for example in the automobile sector.

President Emmanuel Macron will be focused on curing the supply chain problems, especially as he faces re-election in April. He will also assume the presidency of the Council of the European Union in January and should be focused on supporting the revival of other European Union economies in that role. If Macron has economic success, maybe other countries in Europe can take a few pointers.

Spain

Another European bellwether or simply misleading statistics?

Most observers are struggling to assess the Spanish economy. A soaring job market and growing tax revenue usually suggests good news for an economy. Yet the discussion on the Spanish economy is centered on missed economic growth targets in the last couple quarters and how it is falling behind its neighbor France. Prime Minister Pedro Sánchez’s administration continues to argue that the country will hit economic growth of 6.5% in 2021 and roughly 7% in 2022, while the European Commission forecasts economic growth of 4.5% in 2021 and 5.5% in 2022. The debate over who is right is becoming more political day by day.

The national statistics institute is now in the middle of this debate after it adjusted economic growth numbers for the 2nd quarter down to 1.1% from the previously reported 2.8%, which suggests 6.5% for year is not possible. Beyond the GDP estimates, inflation is at record high and Sanchez is ready to spend as much as necessary to achieve such growth numbers. It doesn’t help that many critics believe he is spending with a focus on the 2023 election. The skepticism and lack of certainty on numbers makes Spain a tough case to assess. Still many economists will be watching Spain as a bellwether for Western Europe (alongside with France).

United Arab Emirates (UAE)

Leading the Middle East recovery…

The United Arab Emirates (UAE) has generally been open since mid-2020. As a result, tourism continues to storm back, buoyed by Expo 2020 attendees and the usual holiday trek for Europeans to Dubai (which has beaches crowded and restaurants and bars fully booked). Many arrivals to Dubai have chosen to stay long term (or until covid is over…if ever) and purchased property which has been a boon to real estate and consumer spending for the country. Oil production and prices also help the UAE economy while foreign investors are happy to invest in a country where local currency is effectively pegged to the dollar thus reducing currency risk. Accordingly, the UAE central bank forecasts the UAE economy to grow 2.1% in 2021, which is nearly double expectations at the end of last year, and to grow 4.2% in 2022.

Although most economic indicators are positive, the UAE still faces some challenges. Can Dubai become a long-term option for remote workers? The number of advertisements on European television this year for Dubai in relation to remote work feels less. Can the UAE encourage more people to visit AND live here? More residents spending would help…some data suggests expats living here do not spend (as a % of income) like they did in pre-pandemic times. Thus, it is either more residents or boost resident spending. The track record of UAE leadership suggests the country can and will focus on both goals simultaneously with other ambitions.

Honorable Mention…

Lebanon

Not a bellwether but rather a question of global resilience…

It is fair to assume that nobody is watching Lebanon as a bellwether for a global recovery. The country remains mired in an economic crisis with the Lebanese currency down more than 90% in the last two years and skyrocketing inflation. The queues for basics, such as food and petrol, are disheartening. And most foreign investors are avoiding the place. It is estimated that 75% to as much as 85% of the Lebanese population is living below the poverty line.

People are generally avoiding the country until something changes. Some Lebanese living outside the country may still visit the country but nowhere at a level to replicate the 17–20% that tourism contributed to Lebanon’s pre-pandemic GDP. The new government formed in September led by Prime Minister Najib Mikati, who has previously twice held the position, wants to turn a new page. But so many factors are working against Mikati: the port explosion remains an eyesore for Beirut, wealthy and educated Lebanese continue to leave the country thus further eradicating Lebanon’s tax base; and previous partners appear unwillingly to bailout the country. Thus, why is Lebanon important to watch? Lebanon is a friend of many but does not have any one country willing to support it. If it can find a way out of its current state, it will be a telling story for some downtrodden economies in this ‘covid’ world. Lebanon is not Afghanistan, Sudan, or Tunisia. But let’s assume those countries (and many others) may be watching to understand how Lebanon overcomes its current situation.