The way out of the crisis is being uneven and asymmetric by region and country. Within advanced economies, the US is having a faster exit, with 6% growth in 2021 and 5.2% in 2022, compared to 5% and 4.3% in the EU. One of the biggest threats in the market is the rise in inflation and how it can affect monetary policy, which is why it is convenient to assess the current positions in relation to the actions of the European Central Bank and the Federal Reserve.
In her recent speech at the European Banking Congress in Frankfurt, Christine Lagarde argued that the rise in energy prices, raw materials, and supply difficulties are affecting the recovery, with an impact on the rise in inflation of many products but, noting that the underlying factors must be identified and it is possible that they will normalize in the medium term and that inflation is temporary, thus maintaining the stabilization of inflation at 2% in the medium term and the persistence of continued monetary policy, without withdrawing support prematurely. The nomination of Jerome Powell by the President of the United States to renew his mandate, allows predicting that the FED will maintain the policy of tapering, with an expectation of a rise in interest rates, probably from the June 2022 meeting, and may even make a second rise next year, if inflation data continues to be negative. Europe is lagging behind and, proof of this, is that the euro in relation to the dollar has depreciated over the course of the year and may continue to depreciate if monetary policy continues to be favorable to the dollar.
Despite the rise in short-term interest rates, the interest rate curves have flattened and real interest rates remain negative, which is fueling the appetite for risk, favoring investment in equities, with an effect very positive on the stock markets and it is also being a stimulus for the purchase of houses.
The trend of the Stock Exchanges has been positive, although there is disparity in their growth, being stronger in the American ones. The Nasdaq 100 is the one that has experienced the highest growth, due to the great weight of technological stocks, with a rise from the prepandemic maximum (02-14-2020) of 62.93% and 130.46% from the minimum (20-03-2020). The S&P 500 and the Dow Jones hit all-time highs on November 8, significantly outperforming pre-pandemic levels. Also the Euro Stoxx 50 and the DAX 30, have maintained an upward trend, surpassing the maximum prepandemic. While the IBEX 35 and the FTSE 100 still register a negative differential over said maximum, -14.1% and
The difference in profitability between the Stock Exchanges is explained by the sectoral composition of their indices. Technology has been the great winner and the main beneficiary of this crisis, while companies that are intrinsically related to technology stock of raw materials, have been affected by rising prices, bottlenecks in the supply chain, and the microchip crisis, which has been reflected in lower profitability.
The new South African variant is generating greater uncertainty, as reflected in the large declines in financial markets that occurred on Black Friday. Also, the new waves of contagion are a threat.
Aid packages in the EU, with the funds Next Generation, and in the United States, with the Infrastructure Plan, they give an idea that the exit from the crisis is programmed with sufficient resources to support economic and social transformation, having as inspiring principles environmental sustainability, productivity, equity, and stability. macroeconomic. The recent United Nations Conference on Climate Change in Glasgow, achieved an important advance and symbolizes the capacity for dialogue to achieve global governance on the most relevant issues.
In the PGE Bill for 2022 recently approved by Congress, the figures are very significant, with the highest volume of investment in history in the fields of science, R&D, mobility, sustainability, energy efficiency, education, etc., together with the improvement of the state of well-being.
As the pandemic recedes and the economic recovery takes hold, a new global paradigm begins to take shape. As McKinsey points out, sustainable and inclusive growth can be a dynamic, self-reinforcing combination, but doing so will require addressing the counteracting forces and the responsibility of leaders is to build a future that creates growth, sustainability and inclusion.
Petra Mateos is a professor of Financial Economics.
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