“Whether things are going to go left or right, it’s going to be suspenseful”

Published on: 25 January 2022

What economic developments will we see this year? And what characterized the economy last year? Thijs Knaap, Chief Economist at APG, is keeping a close eye this year on central bank policies and on the political and economic developments in China.


As the hot topic of both last year and this year, Knaap still wants to have mentioned Covid. “It was simply the driving force behind a great many things in 2021, positive and negative. Lockdowns, the variants popping up everywhere, vaccines, government support measures, working from home, growing inequality and the dissatisfaction with this.” He is therefore curious what the impact of the omicron variant will be. “If we're lucky, the consequences will be limited to mandatory working from home and bankruptcies of cruise lines and corporate air travel providers. If we are unlucky, then we are on the eve of a long lockdown and the question of what all needs to close down to prevent the new variant from causing a lot of casualties again,” Knaap states.


Big companies
Knaap still marvels at the high earnings growth of companies in the MSCI World Global Index. “Those profits increased by 70% last year. The big companies that are in such an index, despite corona, are doing great. That’s really an unexpected turn of events that’s working out well for investors. It’s an important development, though, because if the big companies weren’t doing well, the economic concerns would be a lot bigger than they are now.”


Sherlock Holmes

What Knaap sees as characteristic for 2021, in addition to the profitability of the large companies, is that all hell has not broken loose, although there was every possibility for that to happen. “There is a Sherlock Holmes story in which he solves a crime thanks to a dog that did not bark when it was supposed to. The storming of the Capitol, the tensions in Ukraine, government debts jumping by dozens of percent; all events that everyone said would have enormous economic consequences but ended up only causing a ripple. Maybe that’s because everyone is preoccupied with Covid, but it’s striking.”  


The question of what China will do is becoming an increasingly important factor

Central banks
Knaap sees central bank policy as a major theme of 2022. “Only when the broad monetary policy is reversed will you find out who can’t manage without that financial support. That’s what we’re going to find out this year. You also never know how fast it’s going to go, that’s the critical thing about monetary policy. For example, they can raise interest rates twice without consequences. Then they do it for a third time and all of a sudden everything crashes. So, whether things are going to go left or right, it's going to be suspenseful.”



In this new year, Knaap is also keeping a close eye on China. “The question of what that country will do is becoming an increasingly important factor. At least that’s what we’re all saying, but we’re not really taking it into account yet. That’s partly because China has always been so incredibly reliable when it comes to economic growth. Always, when the world economy was doing badly, the Chinese started spending more money, acting as an anchor for the world economy. Now China has reversed its traditional policy and is no longer investing itself out of a period of lower economic growth. Indeed, Beijing is now shortchanging large companies like property developers and Internet companies. Then again, it’s a special year for China. Not just because next month is the Winter Olympics, where all sorts of political mishaps can happen, but especially because Xi Jinping’s term in office expires in October. He will probably stay anyway, but it is a tense moment in which the economy has to be in good shape. And in the background is the story of big companies like Evergrande; we don't know if they will go down, whether they are supported or not. That uncertainty around China is definitely going to play a role in the global economy this year.”