From the archive. First published on 22 February 2022 on weprivate.com.au. It reflects markets, rules and our views at that time and has not been updated. These were our views for the 2022 year only.

Our brief views on the year ahead.

Growth

Growth will slow in 2022 but settle at an above-trend rate for a second year. We expect the US to outperform Europe and Japan, where fiscal drag will be significant. Emerging market growth will also slow, led by China and Brazil, partly offset by India, again projected to be the fastest-growing major economy.

Inflation

The current inflation episode should fade in 2022 as the biggest surge in demand since World War II eases and supply adjusts. Some inflation may linger through wages, balanced by deflationary forces from an expected inventory overhang and technological disruption.

Monetary and fiscal policy

Monetary policy will diverge. Some central banks, mainly in emerging markets, will respond to inflation, while others, mainly in developed markets, take a more patient approach. Central banks can only dampen demand. Supply problems need time to correct.

The fiscal tailwind of the pandemic will become a headwind as governments withdraw support. The turn to austerity is estimated to be five times larger than after the 2008 crisis, and mostly a developed-economy problem.

Asset classes

• Fixed rate bonds remain expensive and offer little income, diversification or stability.
• Credit spreads are historically tight, leaving little room for error, although strong fundamentals reduce default risk.
• Shares. Corporate fundamentals are strong, funding costs are low and margins are holding up. Higher input costs are mostly being passed on to consumers.
• Currency. Our starting preference for Australian investors is to leave international shares unhedged, as a cushion when global shares sell off and the US dollar rises.
• Alternatives offer the most attractive risk-adjusted returns, particularly private debt for yield, private equity for growth, and unlisted infrastructure benefiting from renewables.

General information only. It does not take into account your objectives, financial situation or needs. Past performance is not a reliable indicator of future performance.