It would be very tempting to say that everything will be fine in 2022. Alas, it's not that simple.
Who would have thought a year ago we'd be facing the kind of problems we've had to grapple with in the past year? Problems that, at first glance, have nothing to do with the coronavirus pandemic.
Just take the supply bottlenecks and inflation. There were bottlenecks on all fronts: Carmakers couldn't get enough semiconductors, construction workers didn't have enough timber. The situation is eerily reminiscent of former East Germany and its ubiquitous economy of scarcity.
Rapidly rising demand — created when economies around the globe recovered from the first coronavirus shock at virtually the same time — met with limited supply. The last time the global economy experienced a supply shock of such magnitude was in the 1970s, at the height of the oil crisis. Back then, OPEC tightened the oil supply in response to the West's pro-Israel policy. The price of gas skyrocketed and with it the prices of all products made from crude oil.
Lessons from the oil price crisis
This led to substantial price increases and corresponding wage demands by the unions to compensate for the inflation in employees' wallets. In Germany, for example, public sector workers were given a mind-boggling 11% increase in 1974.
And we could be facing a similar wage-price spiral today. Huge demand, combined with rapidly rising energy prices (we didn't see that coming, either), has put inflation firmly back on the map. Here in Germany, the inflation rate is over 5%, a far cry from the European Central Bank's 2% target.
Whether it can be contained will depend not only on the ECB's monetary policy but also on the upcoming wage negotiations. And then there is a whole range of other imponderables at play: When, for example, will supply chains function again as they did before the pandemic?
No one can make a reliable prediction. One reason is Beijing's restrictive zero-COVID strategy. All it takes is one infected person in one of the huge Chinese ports, and a good portion of the millions of containers there, will be stuck again for weeks. Or we could have another Evergrande moment in the Suez Canal — another prime example of Murphy's Law.
The bottleneck recession
At the end of the year, a large majority of companies in Germany complained of being affected by supply bottlenecks with no improvement in sight. Worldwide, an estimated 11 million cars were not built last year because electronic components were missing. Playing catch-up is fairly unrealistic.
Still, it's not all doom and gloom. For the entire year, Germany's Federal Employment Agency has been able to report falling numbers for those seeking a job. The demand for qualified workers was and is higher than the supply.
The number of company bankruptcies fell to historic lows thanks to generous economic stimulus packages. The German blue-chip stock index DAX climbed to new record highs, easily making up for the coronavirus-induced crash in 2020.
What lies ahead?
Unfortunately, there's no guarantee that the green shoots of recovery will blossom in 2022. The spread and impact of the delta variant that swept through Germany in the fourth quarter tempered optimism, and the effects of the omicron variant remain unclear. The outlook is cloudy, according to the head of the Federal Employment Agency. Insolvencies are likely to jump significantly, especially among small businesses and in the retail and catering sectors, according to experts at Creditreform, a business information service.
The European Central Bank will have to react sooner rather than later if inflation does not return to normal levels. But whatever the decision in Frankfurt (Raise interest rates? Cut back on bond purchases?), uncertainty has never been so great. When will supply chains function smoothly again? When will energy prices fall? Will another coronavirus variant wreak even more havoc than the last one?
Everything will be fine again at some point — but we may have to wait beyond 2022.
This piece was translated from German.