At the beginning of 2022, the global economy continued to recover in the rising covid-19 population and price index. When the eyes of the capital market focused on how the global central banks further tightened monetary policy, the first black swan came this year. On February 21, Russia announced its recognition of the independence of eastern Ukraine; On February 24, Russia invaded Ukraine. When the outcome of the war is unknown and the sanctions have not been announced, how can we judge the impact of the Russian Ukrainian conflict on the global economic recovery in 2022?
In the market outlook for 2022, we gave the judgment of “sunrise in the East and rain in the west” for this year’s global economy, that is, the global economy will show a recovery pattern in which China is better than developed markets. We believe that the differences in macroeconomic policies and economic resilience between China and developed markets are the main reasons for the differentiation of this year’s recovery. As the black swan incident, the conflict between Russia and Ukraine will further deepen the recovery and differentiation between China and developed markets. If one word is used to express the economic impact of this geopolitical risk, it is “stagflation”. Stagflation itself has become the biggest threat to the current global economic recovery, and the conflict between Russia and Ukraine makes the threat very likely to become a reality. The surge in energy prices will further push up this round of global inflation and lead to accelerated tightening of monetary policy by central banks around the world except China.
However, there is no lack of optimistic interpretation in the market: 1) the expectation of the conflict is short, so the impact on oil price and inflation is also temporary; 2) Market uncertainty has the opportunity to slow down the tightening of monetary policy by central banks. We believe that even if the military conflict ends quickly, economic sanctions will continue for some time. Due to high global inflation, even a brief increase in energy prices will push up inflation expectations that are already heating up. Therefore, the space for the central bank to slow down monetary tightening policy is also limited. More importantly, it only slows down, rather than easing, and the general direction of liquidity tightening is not expected to change.
But we are optimistic about China’s economy. The risks in the West highlight the stability of China’s economy. We reiterate that 2022 will be a rare year for China’s economy. Monetary and fiscal policies have entered a relatively loose inflection point. Combined with the increased structural investment in the 14th five year plan, China’s economy this year will not only be stable, but also have high-quality growth.
