The global economy continues to grow

For the month as a whole, the US S&P 500 Index rose by 4.5 per cent measured in USD, while the European Stoxx 600 Index gained 5.4 per cent measured in EUR and the Nordic VINX Index climbed 2.5 per cent measured in NOK. Here in Norway, the Oslo Stock Exchange Benchmark Index (OSEBX) increased by 0.7 per cent.

Risk of rising wage growth

Global GDP seems to have grown by just under 6 per cent in 2021, and we have to go all the way back to 1973 to find a similar increase. This sharp rise follows a 3 per cent weakening in the global economy during the 2020 pandemic year. For 2022, growth is expected to be strong, although slightly weaker than in 2021. Economists envisage an increase of around 4 per cent this year. The continued high capacity utilisation may contribute to rising wage growth and is an important factor in further inflation developments.

Monetary policy is being normalised

Rising wage growth must be weighed against more temporary effects of inflation. For example, commodity prices have risen sharply from low levels, and supply chains have been affected by bottlenecks. The capacity limitations in the economy are probably also important. For the central banks, the strong growth means the labour market is improving. At the same time, their perhaps most important mandate is to keep inflation in check, and this has paved the way for monetary policy normalisation.

Interest-rate hike next?

The US central bank has indicated that support purchases in the securities markets will end in March. The market has priced in a likelihood of more than 60 per cent that the first interest-rate hike will take place that same month, as this is the next natural restrictive measure. The omicron variant of the coronavirus scared the market when it was discovered in November, but appears so far to be milder than feared and is probably not enough to delay the prospects of interest-rate hikes.

The road ahead ...

Growth in the economy is expected to continue to be strong in 2022, even if it falls compared to last year. This means good prospects for further growth in company earnings and is a factor supporting shares as an asset class. The alternative return in the fixed-income market is still low, despite the steps being taken to normalise monetary policy.

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