The top five risks in 2022

15 November 2021

We see five main risks that might challenge our outlook for 2022: inflation, growth, central banks and interest rates, geopolitics and the energy transition. All may be a source of either upside or downside risk to our base case.


Inflation is a hot topic and will likely define 2022 in capital markets. Investors are gradually realising that “transitory” is a matter of quarters rather than months. While many initial contributors to the recent spike in consumer prices show signs of moderation (for instance, airfares, used cars and lodging away from home), other pressure points have emerged, especially in commodities and energy.

In addition, supply-chain disruptions are pushing transport costs higher and creating supply-driven inflationary dynamics. Encouragingly, wages and rent, the stickier components of the inflation basket, haven’t been subject to the same year-over-year increases.

This supports the view that, once disruptions ease and supply/demand imbalances dissipate, inflationary pressures should abate. However, comments from companies suggest that they are keen, when possible, to pass on higher inputs costs to their end customers, which would contribute to keep the consumer price index elevated. At the same time, the longer inflation persists, the more likely it will influence consumer behaviour and hurt their confidence. It may also create additional incentives for workers to push for higher salaries, especially if labour participation remains subdued.

If this negative feedback loop occurs, then central banks might be forced to act in a bid to avoid losing control over their price stability mandate. This is not our base case but a clear possibility, and certainly something markets will worry about in early next year.


Alongside inflation, another worry for investors is the outlook for growth. After a spectacular rebound in 2021, expansion in global gross domestic product (GDP) is bound to decelerate in 2022, as we detail in our macro global outlook. Although it will likely remain above trend, when growth is slowing and inflation is rising, the fear of “stagflation” is never too far away.

This is as close as it gets to a worst-case scenario for many investors. As such, it is important that output keeps up with prices. We believe that will be the case, especially if China cuts back on the various restrictions imposed by its government recently.

However, if the country’s slowdown isn’t reversed or if another wave of COVID-19 infections forces governments to curb economic activity, there would be significant downside risk to consensus expectations. China’s credit impulse, indicating the change in new credit flow as a share of gross domestic product, can be a useful gauge of prospects for the country.

Outside of GDP, earnings growth is another source of risk. As we explain in our equities outlook, the 2021 rally in equities was driven by the jump in corporate profits while valuations contracted from very elevated levels. If earnings disappoint on lower top-line growth or margin pressures, valuations will offer little support. On the other hand, higher-than-expected earnings growth is possible if supply-chain disruptions fade, or if companies exhibit strong-than-anticipated pricing power. This binary outcome calls for a more balanced and more tactical approach to investing.

Central banks and rates

What happens to growth and inflation will dictate central bank activity in 2022. At the moment, monetary policies remain extremely accommodative in most of the developed world. However, warning signs are appearing, with Norway hiking interest rates by 25 basis points in September and with the Bank of England hinting that it would act soon. In emerging markets, the reversal is even more acute, with Pakistan, Hungary, Paraguay and Brazil among others having tightened monetary policy in recent weeks.

When it comes to the US Federal Reserve (Fed) and the European Central Bank (ECB), as we discuss in our fixed income section, we believe they will want to remain as prudent as possible (hence the importance of monitoring inflation). In the US, we forecast a single hike in 2022. In Europe, we will probably have to wait until 2023, at the earliest, to see the reference rate start its journey back to positive territory.

Should they move faster, the ECB and the Fed risk hurting growth, putting undue pressure on governments’ funding and undermining equity valuations. On the other hand, if the central banks stay put for longer, it will likely be because growth has disappointed. While this may ultimately support risk assets, it is unlikely to happen without bouts of volatility.


With COVID-19, tensions between the US and China were relegated to the bottom of investors’ list of preoccupations. As the world emerges from the pandemic, this topic is likely to resurface. While the tit-for-tat confrontation we got accustomed to under President Trump is not being repeated, there are still many areas of contention between the two blocs. Taiwan, in particular, has the potential to be a hot spot in 2022.

In the US, the mid-term elections have the potential to reshape the US House of Representative and Senate. While it’s too early to make any prognostics, history suggests that the incumbent majority usually loses seats in both chambers. With a 50/50 split in the Senate, and an ever more divided political landscape, it would not take much for President Biden to become a “lame duck” head of state for the remainder of his term.

Finally, while the German elections were largely a non-event, as all major candidates were seen as moderate, France’s presidential elections may mark the return of the political risk premium in Europe. Interestingly, eurosceptics aren’t as popular as they were five years ago and many have softened their rhetoric. Yet, the far-right is currently gathering significant support in polls and has the potential to unsettle investors.

Energy transition

Becoming net zero by 2050 is becoming the standard for companies and countries alike. While this may feel too distant to be relevant, given the task at hand, time is already running out. As such, we expect the energy transition to remain a key topic in 2022.

This secular change represents a downside risk to our outlook, in that it may accentuate upward pressures on energy prices and heighten shortages in parts of the global economy (such as semiconductors, basic resources or rare earth materials). On the upside, governments appear committed to encouraging investments in this space, with the potential to support growth. The net effect is unlikely to be zero, at least in the short term. In fact, when it comes to overall growth next year, we see the energy transition as a modest drag rather than a boost.

That being said, we also view the transition to net zero as a source of tremendous long-term investment opportunities. The International Energy Agency (IEA) estimates that the energy transition to a net zero economy by 2050 will cost a total of $150 trillion over three decades. This is as much as the entire US tax base every year, for 30 years. Being able to differentiate between the potential winners and losers in this paradigm shift will be essential.

Outlook 2022

Our investment experts look at why active management looks key for equity investors, what elevated inflation and promised rate hikes mean for bonds, our five-year capital market assumptions and the potential opportunities created by climate change that investors need to consider.

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