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December has arrived and, as a follow-up to our previous column, having a conversation about the expectations for the next year is fundamental. This analysis has become even more necessary considering the emergence of the Omicron variant, and the distress that it brought to the markets.



In its October World Economic Outlook, the IMF stated that the global economy is projected to grow 5.9 percent in 2021 (0.1 percentage points lower than in the July forecast), in line with Bloomberg’s survey at 5.8 percent. However, the appearance of a new COVID-19 variant, Omicron, may affect the end of the year, depending on the actions taken by authorities and their impact on the economy.


Chart 1. Own elaboration. Data by Bloomberg


Flights arriving from certain countries are being restricted, and travelers are subject to stricter requirements, such as testing on arrival and departure. The growing uncertainty is having an impact on the markets. The potential reduction in demand due to travel restrictions has placed the oil market within those that are first experiencing such impact. The price decline, however, had already started. The United States and India, among others, had previously decided to use their strategic petroleum reserves to deal with high oil prices and the OPEC’s reluctance to accelerate its increase in oil production, currently at 400,000 barrels per day.


Chart 1 shows the behavior of Brent oil prices during the past year, with a high of above USD 80 per barrel between October and November. The emergence of the new variant, however, has reversed this trend, with a 15.5 percent drop between November 25 and December 1, hitting USD 69.49 per barrel. Therefore, keeping an eye on Omicron’s speed of spread, the vaccines’ effectiveness against it, and the severity of the disease that it causes will be crucial for the end of 2021 and the beginning of 2022. These are the factors that determine the actions to be taken and the consequential impact on the economy.


US Dollar and Emerging Economies

Expectations for 2022 cannot be discussed without mentioning the US dollar performance, in general and compared to regional currencies. Both are strong indicators when analyzing the dynamics of international trade and investors’ expectations. Throughout the second semester, the DXY index -which compares the value of the dollar against a developed countries’ currencies basket- has shown an upward trend, from 89.95 to 96.07, which amounts to a growth of 6.81 percent. An upward trend of this index indicates an overall strengthening of the dollar. When the Omicron variant came to light bringing along greater uncertainty, the index fell from its year’s highest of 96.88.

Nevertheless, even though the dollar has weakened against developed countries’ currencies, the opposite was the case in the region: the increase in risk aversion caused the 2021 downward trend to continue, as seen in Chart 2. Argentina’s currency led this tendency with a loss of value of 19.39 percent, followed by Peru (11.37 percent) and Colombia (10.60 percent).  Therefore, as long as risk aversion remains a dominant factor in the markets, a strong dollar against emerging economies’ currencies can be expected for 2022.


Chart 2. Own elaboration. Data by Bloomberg


Inflation Expectations and Central Banks

Inflation expectations have been an issue during 2021, with rising price levels as a result of a variety of factors. An increase in the demand for goods and services that took place in the first months of the year was followed by a shortage in final or intermediate goods due to supply chain issues. According to data gathered by Bloomberg, global inflation expectations are projected at 3.7 percent for the end of 2021, and 3.5 percent for 2022. The estimation for the United States for the same periods is at 4.5 and 3.7 percent, respectively. The outlook for Latin America, however, seems to be more extreme. Its path to recovery will probably be affected by inflation, projected at 11.9 percent for the end of 2021 and 10.6 percent for 2022.

This tendency has central banks shifting to a more hawkish stance, rising interest rates or abandoning their asset purchase programs. Jerome Powell said that it is time to stop using the term “transitory” when discussing inflation in the United States.

Even though the consequences of the rise in prices and interest rates started to show in 2021, they will have an impact on demand in 2022. A follow-up of consumption and its influence on the world’s economies during the first quarter will be crucial.


Elections in the region

From a regional viewpoint, elections and their implications regarding risk perception are elements to consider. Elections in Colombia will take place in May. Nevertheless, the situation remains undetermined: while many coalitions are being formed, there are no clear candidates yet. This, of course, creates uncertainty as to which political orientation will prevail.


Chart 3. Own elaboration. Data by Bloomberg


Brazilian general elections will be held in October, and, despite the recent crisis in his economic cabinet, Jair Bolsonaro plans to go for his reelection. To achieve this objective, he has allied with Brazil’s Liberal Party (PL), as opposed to the Social Liberal Party (PSL) with which he had run for president in 2018. The contest is once more characterized by considerable tension and polarization, as voters await to know if former president Lula da Silva will run.

An indicator that should be closely monitored in the remainder of the year and early 2022 is the CDS or Credit Default Swap. The CDS reflects the premium charged to cover the risk of default of a country’s bonds. Chart 3 shows 5-year bonds performance, where both Colombia and Brazil show an upward trend, with a highest of 215 and 249 respectively. The reduction in the spread between them reveals a higher relative risk perception for Colombia.



To summarize, expectations for 2022 focus on the loss of dynamism in economic growth versus 2021, and on the reduction of household demand arising from supply chain issues. Coronavirus-related uncertainty, especially when it comes to new variants, is a key aspect to consider. It has a strong impact on investors’ risk perception, affecting financial markets and strengthening the dollar against emerging economies’ currencies. Finally, 2022 will be a year of political and economic challenges, with elections are taking place in some countries, and central banks facing the need to control inflation, which may continue to put pressure on unemployment rates and create social unrest in the region.


This report was made by Gandini Análisis for SupraBrokers only as content. It shall in no case be considered as an investment recommendation.

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