2022 Outlook

Rob Lovelace - Vice Chairman & President, Capital Group

January 10, 2022

Expect strong but slowing economic growth in 2022

The global economy should enjoy solid growth in 2022, according to Capital Group economists. But clear risks lie ahead, including the gradual reduction of stimulus from central banks, stubborn inflation, a slowing China and the emergence of COVID variants.

U.S. OUTLOOK

U.S. economy is healthy, but inflation persists

The American economy should remain healthy in 2022 thanks to strong corporate profits and robust consumer spending, but inflation pressures and other headwinds will likely temper growth.

The image shows the average annual returns for U.S. equity and fixed income at different inflation levels from 1970 to 2021. Returns for each level of inflation are as follows. For inflation below 0%: U.S. equity –6.5% and U.S. fixed income 6.8%. For 0%–2% inflation: U.S. equity 11.7% and U.S. fixed income 5.0%. For 2%–3% inflation: U.S. equity 14.2% and U.S. fixed income 4.2%. For 3%–4% inflation: U.S. equity 10.8% and U.S. fixed income 6.6%. For 4%–6% inflation: U.S. equity 8.6% and U.S. fixed income 4.3%. For 6% inflation or above: U.S. equity –3.7% and U.S. fixed income –4.3%.

INTERNATIONAL OUTLOOK

The digital revolution goes global

The outlook for international equity markets is brighter than it’s been in a long time, thanks to improving European economic growth, the expansion of the digital revolution beyond U.S. shores and the restoration of dividends by companies throughout the world.

The graphic shows a world map of companies with rising dividends: Broadcom, UnitedHealth, J.P. Morgan and Comcast in the United States; TD Bank in Canada; Enel and Zurich Insurance in Europe; Power Grid of India; Tokyo Electron in Japan; and China Gas Holdings, Samsung and Taiwan Semiconductor Manufacturing in Asia. Sources: Capital Group, Refinitiv Eikon. As of October 31, 2021.

FIXED INCOME OUTLOOK

Maintain balance with bonds

With equity market volatility surfacing and many assets priced for perfection, fixed income has the potential to provide important diversification to investor portfolios.