Economic review
2022 will be mostly remembered by investors as a year of high inflation and rising interest rates. This led to negative returns. Not only on government bonds, but on all other asset classes as well. As a result, 2022 was an exceptional year for investors. Negative annual returns on both equities and bonds have occurred only twice before in the past 100 years, in 1931 and 1969. What does this mean for the returns realised for the Employee Pension? And what are the prospects for the coming year? In this investment update, we review the past quarter and take a look ahead.
A moderate year for economic growth
2022 was a moderate year for the global economy, with growth of around 3%. The strong recovery of 2021 did not continue due to the war in Ukraine and the aftermath of the corona pandemic. Developments varied considerably by region. The US economy experienced a difficult first half of the year, but then recovered. On the contrary, the European economy started the year well but then declined as the effects of the war in Ukraine became more evident. China's economy continued to be hampered by the corona virus and the government’s corona policy throughout the year.
Inflation the determing factor
In many countries, inflation rose to its highest level in at least 40 years in 2022. US inflation for instance peaked at 9.1% in June. In the eurozone, inflation was even higher in October, at almost 11%. Inflationary pressures also increased sharply outside Europe and the US. Only in China did inflation not exceed 3%, partly due to continued lockdowns and subdued growth. Globally, inflation has thus surged to an expected extent, partly due to pent-up demand following the corona pandemic and higher food and energy prices due to the war in Ukraine. Both these factors have some way to go, but their effects could decrease rapidly. For instance, food and energy prices have already fallen compared to high levels in 2022.