Flashes of light in a terrible year
Few will regret the passage of 2022. You have witnessed a brutal attack on a peaceful neighbor by a vile despot. He has seen skyrocketing inflation and plummeting real incomes in a global cost-of-living crisis. He has seen rising interest rates, a strong dollar and widespread debt difficulties: according to the IMF, 60 percent of low-income countries are in debt distress or at high risk of being so.
It has seen asset prices fall and increased volatility in the markets. It has seen major moves toward US-China decoupling and the formation of competitive blocs centered on the two superpowers, with Russia firmly in China’s camp. has seen the COP27 conference failure bend down the greenhouse gas emissions curve. It has not even fully recovered from the terrible results of the Covid pandemic, especially among the world’s poorest people.
This is bad. Worse may be yet to come, possibly even much worse. Vladimir Putin, in particular, is an unknown quantity. Also, as we have seen in his policy towards Covid, so is Xi Jinping. Who knows what financial chaos the Republicans could unleash over the US debt ceiling in 2023? Once again, will the EU really stay the course on Ukraine as interest rates rise, economies slide into recession and the debt overhang grows?
However, not everything is bad. In 2022, the light also shone in the gloom. Let’s celebrate this before we plunge into a new year.
The west is back. The invasion of Ukraine has united those who share democratic values. For the NATO alliance, it was a moment of rebirth. For Germany, it was a return point. For Finland and Sweden, it was time to reject neutrality. the one of donald trump flattering Putin it failed to undermine US support for Ukraine. Volodymyr Zelenskyy won the propaganda war, hands down. He is the heroic leader Ukraine, and the West, so desperately in need.
putin is not the only strong man who seems weaker today than a year ago. So do Xi and Trump. previous zero-Covid policy has ended in ignominy. The claim of today’s version of ancient Chinese despotism to rule more competently than messy democracy is in tatters. Iran’s despots are under attack of their pups. Trump’s candidates were substantially disowned in the midterm elections. Yes, he has too many followers to be comfortable. The Republican elite is still cowardly. But Congress has now done its attempted insurrection clear as day
Meanwhile, in battered Britain, the value of democracy has also been demonstrated. Fearing electoral defeat, the Conservatives dumped Boris Johnson, followed by the staggeringly incompetent Liz Truss in 44 days. No one died. Democracy is not perfect, especially when it takes the form of referendums on issues that people cannot be expected to fully understand. But they do learn: a recent YouGov survey shows that 51 percent regret Brexit and only 34 percent still support it. This change will allow a future government to bring the UK closer to the EU again.
Too late, but with determination, the Federal Reserve has moved to control domestic inflationary pressures in the US, where they were strongest. Partly as a result, inflation expectations are kept in check. The pain is yet to come. But there is a good chance that inflation will be under control in the US and elsewhere in 2023. A return to growth should follow.
The increase in nominal and real interest rates has shaken the markets. The cyclically adjusted price/earnings ratio on the S&P 500 has fallen from 39 in December 2021, the second-highest peak on record, to a recent low of 27. That is still well above the long-term average of 17. But it is a step towards reality. Markets have also become noticeably more volatile, with some speculative assets plunging badly. Bitcoin is down from a peak of $69,000 last year to $17,000. This proves that it is neither a unit of account nor a store of value. It has never been a useful means of payment. Just as it happened with Bitcoin, it also happened with Sam Bankman-Fried’s FTX. Interest rates may not stay high in real or nominal terms. But his jumps have reminded investors of risk. Good.
Globalization is not dead either. In fact, outside of the US, where complaints about unfair trade have become almost epidemic, most countries understand that they need dynamic trade to thrive. Encouragingly, the IMF forecasts that the volume of world trade in goods and services will increase by 4.3 percent this year. Interestingly, this is faster than the 2.9 percent growth in trade in goods: trade in services is taking the lead. This follows 10.1% growth in the volume of trade in goods and services and 10.8% growth in trade in goods in 2021. Meanwhile, global gross domestic product is projected to grow by just 3 .2% in 2022, after 6% in 2021.
So the world is not deglobalizing: trade is simply not growing as fast as it used to be. That’s partly a natural development. Globalization could not grow as fast as before. But he’s still at work. The world economy also continues to grow. Our ancestors would find this extraordinary.
Finally, in a haphazard and poorly coordinated way, the world is leaving Covid behind. This is greatly helped by vaccines, although they are not distributed as widely as they should be. There are likely to be worse variants and likely new pandemics. But this is progress.
It’s easy to feel overwhelmed by the dangers, injustices, conflicts, and failures of our world. Surely there are enough. But not everything that happened this year was a disaster. For those of us who believe in democracy, the rule of law, continued economic advancement, global economic integration, sound financial markets, and monetary stability, 2022 wasn’t all bad. Let’s hope 2023 is better though. Needs to be.
martin.wolf@ft.com