After two years since the first COVID-19 case was reported, 2022 can prove to be a game-changer in geopolitics, power and finance. The following are some predictions that can take place this year.
1) Another Russian annexation of Ukraine
In 2014, Russian annexed part of Ukraine known as Crimea after a short-lived, violent war. Many analysts consider this move as a weakness from primarily the European Union and the United States for failing to act and letting Russia get away lightly by imposing economic sanctions which had little effect.
In late December 2021, news outlets reported that the intelligence community observed increased military activity along the Russian-Ukraine border. Western heads expressed their concern with their Russian counterparts. However, Russia maintained that whatever happens within its walls is their business.
A Russian invasion may have devastating implications on the energy markets, especially Europe. According to Eurostat, 30% of the EU’s oil and 39% of its gas imports came from Russia in 2017. Energy products accounted for more than 75% of Estonia, Poland, and Slovakia.
Such a situation could send energy and oil product prices soaring.
2) An invasion of Taiwan
China has always maintained that its relationship with Taiwan is of “one country, two systems”. China uses a communist Government system, and Taiwan is a democratic country. However, most Taiwanese refute these claims and have always considered themselves independent from China.
China has always considered Taiwan as part of its territory.
China has already demonstrated its strength – mostly during its conflict with Hong Kong, which started in 2019. China sent its military into Hong Kong during the strife between pro-democratic and pro-Chinese supporters. Like Taiwan, China maintains a “one country, two systems” system.
In a 2022 New Year’s speech, the Taiwanese president warned China against an invasion after China had increased its military presence for the past two years, with even more pressure escalating during the last few months.
The EU and US Governments have threatened to introduce fresh economic sanctions. Such measures probably won’t have any significant impact due to China’s size and robust domestic economy. Any sanctions will likely backfire and affect countries like Australia, one of China’s leading trading partners.
The US will unlikely intervene in wars between Russia and Europe, China and Taiwan. The reason is the 20-year long war in Afghanistan which is estimated to have cost the American taxpayer close to 3 billion US dollars and thousands of lives. Another reason is the general lack of appetite for another war since the Afghan war only the Taliban with the Taliban.
The astonishing speed the Taliban took over Afghanistan and lack of resistance from anti-Taliban forces after the American withdrawal left many questioning America’s roles as a global peacekeeper.
The perception of America’s decline in its dominance and the EU’s wrist-slapping approach to severe issues will give significant powers like China and Russia to do what they want.
3) Inflation galore
The US has been reporting above-average inflation rates during the past few months. The Euro area has reported higher inflation for 2021, around 5%. The rate is higher than what the Euro area experienced in the 2008 recession.
Inflation causes the price of the same goods to be more expensive, causing a decline in the purchasing power of money. A €100 note could buy €100 worth of goods in January 2021; however, a €100 note can buy €95 cost of goods at the end of December 2021.
Analysts expect 2022 to offer higher inflation rates than what we’ve experienced in the previous years.
A recession is the opposite of economic growth. A recession is confirmed when an economy experiences two consecutive quarters of negative economic growth measured by the Gross Domestic Product (GDP). Analysts seem to believe that 2022 will repeat the 2008 recession.
The catalyst of the recession points to the potential collapse of Evergrande, China’s largest real estate company. Others in the same industry are also facing challenges. Evergrande has been struggling to pay its debts to Government-owned banks and foreign investors, risking a spread of an economic crisis from one region to another. Better known as a contagion.
The Chinese government has a “common prosperity” ideology, where both rich and poor have the opportunity to become wealthy. The government ensures that customers get the home and employees get salaries owed to them. In December 2021, the government asked the Chairman of Evergrande to use his fortune to pay the company’s debts.
Should the government intervene? If the government bailout the real estate sector, it will be punishing common people for the actions of the bad actors. Such a situation could undermine the authorities’ ability to maintain social stability—one of the core beliefs of the Chinese government.
A lack of timely intervention could create contagion in other industries. A textbook example dates back to 2008, where the American government decided that Lehman Brothers, a bank, didn’t merit a bailout. Such a move made people believe that other banks were insolvent, which was one of the leading factors of the recession.
5) Crypto goes mainstream
The year 2021 was an amazing year for Bitcoin and other alt-coins. Crypto was recognised by financial institutions and brought to the attention of Governments. It ranges from an outright ban by China to being recognised as an official currency in El Salvador.
Following a backlash that Facebook faced due to its toxic products, it rebranded itself as Meta. The company wants to go beyond social media and delve into the metaverse. The foundation of the metaverse is blockchain and crypto.
The rebranding brought the necessary attention to metaverse projects based on the metaverse.
The year 2021 also discussed topics like censorship and who owns the internet. Many attributes that the internet is centralised and owned by companies like Google, Facebook and large internet companies. These companies control the internet.
People see blockchain projects like Ethereum and Cardano as the internet’s path to decentralisation – referred to as Web 3.0. The big corporations will no longer own the internet, and any government will have to power off every household to censor access to the internet.
Analysts are dubbing Bitcoin as digital gold. In times of economic uncertainty and inflation, Bitcoin can be considered an asset against inflation.
Unfortunately, the markets haven’t been too generous in December 2021. The market wiped out 40% of Bitcoin’s value.
This correlation is closer to the performance of stocks than to inflation protection assets like gold.
Crypto evangelists see such a discount to accumulate more of their favourite coins since fundamentals (news based sources) are positive.
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