FX.co ★ 7 black swans for global economy in 2022

China as ticking time bomb

The first black swan is a possible economic crisis in China. The Chinese economy has recently been recovering at a furious pace. Nevertheless, China is still a ticking time bomb for a group of countries. In case a pessimistic scenario plays out, and a financial crisis arises, demand for commodities will collapse, leading to a widespread risk-off (risk aversion in global markets).

COVID-19 bombshell

The coronavirus pandemic lasting from 2020 through 2022, has shown us that the virus is full of surprises. The emergence of the latest Omicron variant is one of such revelations. New mutations of the virus and continuing wave-like progression of the pandemic are not excluded. Scientists are concerned about the possibility of more aggressive and vaccine-resistant strains. If such events unfold, the global economy will suffer severely, facing stagflation due to the introduction of new lockdowns and quarantine restrictions.

Prolonged and steady inflation

The unexpected and long-lasting explosive growth of inflation in advanced nations is the third black swan on our list. Central banks are now ringing the alarm, taking urgent measures to normalize their monetary policies. However, their emergency actions do not guarantee positive results. Markets are anticipating rate hikes by the US Federal Reserve and other world’s leading regulators. In addition, financial watchdogs are now winding down their stimulus programs. If the worst-case scenario unfolds, a collapse in financial and commodity markets will be inevitable, triggering a series of defaults in the so-called "weak spots" of the world economy.

Financial crises in emerging markets

Analysts are preoccupied with the current situation in emerging markets and do not rule out the likelihood of debt or financial crises there. In December 2021, Turkey was on the verge of a financial crisis when its legal tender, the Turkish lira, collapsed. A series of crises in emerging markets could cause a risk-off in global markets and spark a rush into safe havens or more advanced countries, experts warn.

US midterm elections

Congressional midterm elections will take place in the United States this year. Their outcome could shake markets. Americans’ confidence in President Joseph Biden is decreasing. Therefore, analysts find it difficult to predict the midterm election results. The question remains whether Democrats will be able to preserve their fragile control in the US Senate and hold a majority of seats in the House of Representatives. Experts fear that political differences in the world's largest economy will have dire consequences for the global financial market.

Falling demand for commodities

A sharp decrease in demand for commodities is seen as a black swan for the global hydrocarbon market. This could lead to a significant drop in the prices of oil, gas, and many precious metals. There have been no negative signs so far. Nevertheless, everything could change in a blink of an eye. Energy prices are likely to go down because the OPEC+ countries and other oil producers will increase output, experts project. A return to the Iran nuclear deal poses certain risks as well. If so, sanctions against Iran may be lifted. This, in turn, could boost exports of Iranian oil, and the global oil market may face tremendous pressure as a result.

Geopolitical risks

Geopolitical risks are the seventh and the last black swan on our list. Almost every country is exposed to them. Escalating tensions between Russia and Western countries as well as America's complex relationship with Beijing are the biggest geopolitical test of the 21st century. Trade cooperation between China and the United States is still questioned. In addition, pressure between Taiwan and mainland China has been building as the latter sees the former as its province. If China uses force against Taiwan, the situation will get out of control, and the consequences for the world economy will be disastrous.