December 13, 2021/Cordros Report
The breakthroughs on Covid-19 vaccines raised optimism that 2021 would be a post-pandemic year of recovery. However, despite ample monetary and fiscal support in advanced countries, the path of recovery has not been entirely smooth as uneven vaccinations rates globally have allowed new mutations of the virus to emerge, thus, hampering overall progress towards achieving herd immunity. Consequently, advanced economies such as the US, UK and Germany affected by the new strains have accelerated the administration of vaccines to preserve the full reopening of their economies. However, the recent emergence of the Omicron variant suggests that the post-pandemic era may still be in the distant future.
As economies across the globe recover from the lows induced by the pandemic, growth outcomes have diverged across regions, reflecting varying impacts of pandemic-related disruptions, access to vaccines and adequacy of policy support. In developed and emerging economies, price pressures have been magnified by labour shortages and supply chain disruptions in the face of pent-up consumer demand. On the other hand, low-income economies grappled with rising food prices, widening income inequality, and growing social unrest. As a result, the road towards synchronised global growth remains long.
Though uncertainties regarding the possible impacts of the Omicron variant on the global economy’s health remain, the global economy is expected to stay on the path of recovery. Economic activities should continue to normalise as continuous vaccine administration sustains the easing of containment measures. However, the recovery pace is expected to moderate in 2022, reflecting the impact of the initial post-COVID boost. Meanwhile, heightened concerns over persistent inflationary pressures have made central banks in advanced countries consider winding down asset purchase programmes. As global financial conditions tighten, emerging economies will have little leeway to maintain their dovish stances.
In the crude oil market, prices rallied following the rebound in global demand for crude bolstered by the reopening of economies. In addition, OPEC+ production cuts provided another layer of support. We expect production to outpace consumption in 2022 due to increases in output from OPEC+, the US and non-OPEC producers. Also, demand for crude oil will likely be distorted by the emergence of the Omicron variant and the possible ensuing economic restrictions that may limit oil consumption. Nonetheless, improving vaccination rates are expected to support demand conditions. On a balance of factors, we forecast Brent crude price will average between USD68.00 and USD73.00/bbl. in 2022.
