Warren Buffet once said, ‘the stock market is designed to transfer money from the active to the patient’. This year, 2022, this advice will be extremely relevant!
Covid 19 has had a severe impact on our economy over the past 2 years. 2021 was tough for many businesses not least hospitality. Many small businesses embraced technology for alternative ways to attract customers. Other businesses such as big tech companies saw their profits soar. We witnessed economies around the world shut down as governments prioritised the health of their citizens. 2022 begins, however, with some optimism that the pandemic is finally coming to an end as infections start to decline.
Inflation
According to Dermot O’Leary of Goodbodys global growth is expected to be lower this year at about 4.5% but should return to trend again in 2023. It’s expected the euro area will outpace the US in terms of growth in 2022. Inflation continues to rise globally and is causing much concern for investors. Headline inflation rates are anticipated to come down over the next 12 months, but the underlying inflationary pressures may start to increase. (What’s more, there are 7 million fewer workers than in 2019 in OECD countries overall.)
According to the ESRI inflation is expected to be at 4% this year but fall back close to 2% by quarter. Growth is anticipated to run at a rate of 6% while unemployment is excepted to fall to pre-covid levels.
Interest Rates
The European Central Bank is unlikely to raise interest rates until 2023. The US Federal Reserve has indicated that it may need to raise interest rates 3 times this year if inflation continues to increase. Meanwhile, the Bank of England has hiked interest rates to 0.25% to reduce inflation. It’s expected further hikes will take place in the first half of 2022.
The persistence of inflation will be vital to the outlook for interest rates this year.
Cautious optimism for 2022?
Growth is expected to remain strong despite ongoing uncertainty around the pandemic, inflation, and EU UK trade relations. The outlook remains positive for 2022 however, the rearview mirror is always clearer than the windscreen, so it is important to create a long-term financial plan with a diverse portfolio driven by realistic expectations and an assumption that there will be volatility in the markets along the way. A good robust investment plan that takes your risk profile into account should be enough to weather any storm, just make sure you stick with it.
Whether you are a business owner, company director, or you’re about to retire your money needs to be working for you. As your circumstances change throughout your life reviewing your financial objectives and refining your investment strategy will be essential.