Economic Playbook 2022

Omicron Adds To Moderating

Growth And Higher Inflation

Global Economics & Markets Research

04 January 2022
 Content

Stepping Into 2022

Omicron Adds To Moderating Growth And Higher Inflation

Projected Impact From Omicron In 2022

Our Base Case Scenario – Slight Downside

Global Economic Outlook FX Strategy

Our Real GDP Growth Forecast Will Omicron Derail The USD Rally?

US Economic Outlook Rates Strategy

The Economy Still Growing But Slower Shorter Maturity Yield Changes To Gain Prominence In 2022

China Economic Outlook Commodities Strategy

The Economic Challenges Have Increased Will Omicron Spell The End Of The Strong Rallies In Brent And Copper?

FX, Interest Rates & Commodities

Our Forecasts

Central Bank Outlook

Our Projection For Policy Rates Direction

The Political Landscape

Key Elections To Watch In 2022

2
Source: UOB Global Economics & Markets Research Economic Playbook 2022
 Stepping Into 2022
Omicron Adds To Moderating Growth And Higher Inflation

The emergence of Omicron variant in late 2021 has clouded the outlook for 2022. While more data
is required to cast a verdict on this new variant, the current global economy is in a better condition
to weather these uncertainties compared to the last 2 years.

Vaccinated Global Population Vaccines Improvement Better Equipped Healthcare Sector

58% of the world population has received Both Pfizer and Moderna stated that a The healthcare industry is now better
at least one dose of a COVID-19 vaccine booster dose of its vaccines may offer equipped and has gained experience in
protection against the Omicron variant. dealing with COVID-19 cases.
They are also developing an Omicron-
9.0% specific vaccine.
Share of people in the world
partly vaccinated against Pfizer on 8 Dec 2021
COVID-19 On 25 Nov, the companies started to Resilient Business Industry
develop an Omicron-specific COVID-19 During the pandemic, many businesses
49.2% vaccine – if needed they can deliver an have been compelled to adapt and pivot
Omicron-based vaccine in March 2022. quickly in order to stay afloat including the
Share of people in the world
adoption of digitalisation and moving from
fully vaccinated against
Moderna on 29 Dec 2021 offline to online.
COVID-19
On the new vaccine aimed specifically at
ameliorating the effects of the Omicron
18.6% variant: “…we will be able to begin the first
Share of global daily COVID- clinical trials with humans in early 2022, to
19 vaccine doses have the first test readings at the start of the
administered as boosters second quarter of next year”.

3
Source: Our World In Data (as of 31 Dec 2021), Media reports, UOB Global Economics & Markets Research Economic Playbook 2022
 Projected Impact From Omicron In 2022
Our Base Case Scenario – Slight Downside

Governments to rollback If Omicron is more transmissible but less deadly as a

past stimulus measures variant while current vaccines are still effective to an
extent, we may see some temporary tightening of
social restrictions and targeted border closures to
bring down the caseloads and manage hospital
Reopening able to proceed in most economies in cautious manner,
resources.
may see sporadic restrictions to curb spikes in severe cases

Thereafter, business and social activities will restart,

Growth to be dented temporarily: sporadic disruptions to personal
and we can expect more economies to resume its shift
services, tourism, travel, F&B, offline retail sectors; manufacturing towards the endemic state of living with COVID-19.
able to perform. Loss in 1H, compensated by a better 2H
Even though growth may initially be dented, especially
at the early stage when some of the restrictions are re-
Inflation upside pressures to remain as consumer introduced, there will likely be a stronger growth
demand is not affected severely. Supply chain bottlenecks
rebound when the measures are lifted, so
persist due to disruptions from periodic lockdowns
consumption will come back stronger in 2H, making up
for the losses in 1H due to Omicron. Thus, this will
Central banks to rollback accommodative have little overall impact on growth.
measures but more cautiously. Fed to complete
QE taper by Mar, 3 rate hikes in 2022

Read more

Information as of 17 December 2021 4

Source: UOB Global Economics & Markets Research Economic Playbook 2022
 Global Economic Outlook
Our Real GDP Growth Forecast

Pandemic Year 1 Pandemic Year 2 Pandemic or Endemic?

2020 2021F 2022F

India -7.3 +8.5 +8.0

China +2.3 +7.9 +5.7
United Kingdom -9.7 +7.3 +4.7
Singapore -5.4 +7.2 (actual) +3.5
Hong Kong -6.1 +6.7 +3.0
Taiwan +3.4 +6.1 +3.9
Philippines -9.6 +5.5 +6.5
United States -3.4 +5.5 +3.5
New Zealand -1.2 +5.3 +4.1
Eurozone -6.3 +5.1 +4.1
Australia -2.3 +4.0 +3.7
South Korea -0.9 +4.0 +3.0
Malaysia -5.6 +3.5 +5.5
Indonesia -2.1 +3.5 +5.0
Vietnam +2.9 +2.6 (actual) +6.8
Japan -4.5 +1.6 +2.3
Thailand -6.1 +0.7 +3.5

Read more

Figures in y/y % change except for US in q/q saar (information as of 03 January 2022) 5
Source: Macrobond, UOB Global Economics & Markets Research forecasts Economic Playbook 2022
 US Economic Outlook
The Economy Still Growing But Slower

Growth Inflation
Resurgence in On-going
While 2021 is still expected to be a recovery COVID-19 CPI inflation may remain elevated and
year from the pandemic-ravaged 2020, we energy crunch persistent in coming months, especially if
infections
have downgraded the 2021 US GDP growth normalisation of supply chain/logistics
forecast to 5.5% due to the 3Q slowdown while bottlenecks are worsened due to Omicron and
factoring a 5.0% rebound in 4Q. Thereafter, we keep portions of inflation pressure intact in
expect US growth to ease to 3.5% in 2022 Growth 1H before abating in 2H 2022.
but still be above potential growth. uncertainty has Pandemic-
Expiring
fiscal COVID- increased in view related supply
19 support of these factors bottlenecks
measures
Labour Market Monetary Policy

Despite the slower job creation and Omicron’s The Fed will accelerate QE tapering which we
arrival, we still expect jobless rate to fall US-China Inflation now expect to be completed in Mar 2022.
further into 2022 as labour market frictions relations & pressures Thereafter, we expect three rate hikes in
recede but the ongoing structural shifts in the geopolitical risks 2022, the first one likely in Jun. Persistent
labour markets may mean that participation inflation pressures in early 2022 may translate
rates stay below pre-pandemic levels even as into heightened risks of earlier and more
labour market heads towards full employment. frequent rate hikes.

Read more

Information as of 17 December 2021 6

Source: Macrobond, UOB Global Economics & Markets Research Economic Playbook 2022
 China Economic Outlook
The Economic Challenges Have Increased

Economic PBOC Signals Stronger Policy Support

The labour Domestic supply
Challenges market has chain disruption is PBOC Key Policy Actions In 2021
been resilient likely to intensify as
so far but China contains the 1Y Loan Prime Rate (LPR)
unemployment domestic COVID- Total 5bps cut to 3.80%
has remained 19 spread. The
impact on supply Banks’ Reserve Requirement Ratio (RRR)
relatively high Total 100bps cut
for the 16-24 chain could
age group, persist through Foreign Currency Deposits Reserve Requirement Ratio (FC RRR)
The fallout from reflecting the The Central Feb in view of the Total 400bps hike to 9%
Chinese property difficulty for Economic Work increased
developers’ defaults fresh Conference in vigilance through
The string of actions from the PBOC, viewed holistically, is reflective
has caused graduates to Dec 2021 the Lunar New
Year and Winter
of a central bank accelerating monetary policy easing in response to
residential home find jobs. repeatedly
Olympics in China’s slowing economy. At the same time, the actions are very
sales to plummet. emphasized
Beijing. measured and the PBOC will unlikely move to ease monetary policy in
With property sector “stability” as a
accounting for 70% key priority in a big way.
of household assets, 2022 with both
the weaker outlook for the fiscal and
the property market monetary policy
will have substantial supports Is The CNY Too Strong?
negative wealth effect expected to be
that may feed into increased and The recent strength in the CNY is likely to be short-lived and
weaker demand front-loaded in increasingly at odds with a slowing Chinese economy. Also, the
recovery. early 2022. PBOC has acted to slow the CNY appreciation by hiking the FC RRR
for a second time in Dec 2021. We keep to our upward trajectory in
USD/CNY but have lowered the point forecasts in view of the resilient
CNY.
Read more

Information as of 20 December 2021 7

Source: Macrobond, UOB Global Economics & Markets Research Economic Playbook 2022
 FX Strategy
Will Omicron Derail The USD Rally?

The latest virus variant may exacerbate inflationary As for Asia FX, the prospect of 3 Fed rate hikes
USD rally pressures (due to supply chain disruption) that many across the second half of 2022 triggering potential
continues in DM economies such as US and UK are facing portfolio outflow, a potential surge of Omicron
2022 amidst currently, forcing the policymakers’ hand to tighten infections together with a slowing Chinese economy
Omicron monetary policy. will add downside risk. Comparison with the last Fed
taper and rate hike cycle also suggest a long runway
With the Fed already accelerating its tapering pace, for Asia FX weakness.
the monetary policy gap between the Fed and the
Monetary policy
more dovish central banks such as the ECB, BOJ Overall, we expect Asia FX to fall modestly against
divergence is
and RBA may stay wide even with Omicron in the the USD in 2022. Specifically, by 4Q22, USD/CNY,
key driver for
picture. USD/SGD are expected to rise to 6.55 and 1.40
major FX
respectively.
As such, the monetary policy divergence will
remain a key driver of USD outperformance in the Tail risks associated with COVID-19 may
DM space over the EUR, JPY and AUD in 2022. continue to recede as vaccination rates across
Asia FX faces
Specifically, by 4Q22, we see EUR/USD and Asia pick up further and mitigate serious
dual risks of
AUD/USD weakening further to 1.10 and 0.68 illnesses, sparing Asia FX from the acute
hawkish Fed
respectively, while USD/JPY is expected to rise depreciation pressures it sustained at the onset
and Omicron
further to 117. of the pandemic. Overall, we expect Asia FX to fall
broadly against the USD in the coming year.

Read more

Information as of 17 December 2021 8

Source: UOB Global Economics & Markets Research Economic Playbook 2022
 Rates Strategy
Shorter Maturity Yield Changes To Gain Prominence In 2022

Short term Short term interest rates to begin moving higher As for longer dated outlook, our base case view is
interest rates to earlier than previously expected. With the more for nominal UST yields to reprice higher in the
begin moving aggressive and quicker Fed tapering trajectory and upcoming Fed tightening cycle off the back of
higher earlier anticipated rate hike as early as Jun 2022, we are higher real yields. That said, the upside trajectory
than previously also projecting that short-term interest rates for both nominal and real 10-year UST yields will not
expected such as Libors and risk-free rates (RFRs) will exit be unopposed. This is mainly due to the higher
their hibernation stage earlier than previously global debt pile as well as the practical resistance of
expected. how high yield will be able to climb depending on
how well other asset classes adapt to higher discount
Pieces of the
Furthermore, incremental flows into currently excess factors.
puzzle are
liquidity conditions will also taper off more quickly
falling into place
than our previous assumptions. Consolidating our views, we can infer that the puzzle
for cyclically
pieces are increasingly falling into place for a
flatter yield
Our projection is for 3-month USD Libor and 3-month flattening yield curve cycle to take place going
curves
SGD SOR to touch 1.15% and 1.10% by the end of forward.
2022. We see overnight SOFR and overnight SORA
at 0.88% and 1.01% by the end of 2022 respectively. Overall we see 10-year UST yield breaching
2.00% in 2H 2022 and for 10-year bond yields to
end 2022 at 2.15% and 2.10% in the US and SG
respectively. Concurrently, the 2s10s UST yield
spread could trace out a volatile range to end 2022 at
around 80 bps with the potential to flatten further into
the mid and later stages of the Fed funds rate hike
cycle.
Read more

Information as of 17 December 2021 9

Source: UOB Global Economics & Markets Research Economic Playbook 2022
 Commodities Strategy
Will Omicron Spell The End Of The Strong Rallies In Brent And Copper?

Gold Brent Copper

The outlook for gold remains As for Brent crude oil and LME As for LME Copper, it does look like
frustratingly neutral going forward. Copper, the new Omicron risk has the twin risks of Omicron as well as
On the one hand, the anticipated resulted in near term price weakness China’s growth and industrial
quicker pace of tapering and nearer and reinforced near term resistances activity slowdown have started to
rate hikes from the Fed will bring at USD 80 / bbl and USD 10,000 / weigh on demand as well.
forth a stronger USD and higher MT respectively.
rates, both of which are key negative Of note is that China’s industrial
drivers against gold. Specifically, Omicron adds demand tends to reach a seasonal
uncertainty as to when global energy low across the winter months
On the other hand, how Omicron demand may return to pre-COVID leading into the Lunar New Year
plays out and its impact on economic levels. In addition, the untimely SPR period in early 2022.
recovery may well trigger more safe release has also weighed down on
haven demand for gold. Overall, we Brent crude. We now downgrade our Overall, we stay neutral for LME
see gold staying neutral around USD Brent crude oil view to neutral and Copper at USD 9,000 / MT.
1,800 / oz throughout 2022, albeit see some consolidation around USD
with the occasional whipsaw volatility. 70 / bbl in 1H22 followed by USD 75
/ bbl in 2H22.

Read more

Information as of 17 December 2021 10

Source: UOB Global Economics & Markets Research Economic Playbook 2022
 FX, Interest Rates & Commodities
Our Forecasts

FX 1Q22F 2Q22F 3Q22F 4Q22F INTEREST RATES 1Q22F 2Q22F 3Q22F 4Q22F COMMODITIES 1Q22F 2Q22F 3Q22F 4Q22F
USD/JPY 114 115 116 117 US Fed Funds Rate 0.25 0.50 0.75 1.00 Gold (USD/oz) 1,800 1,800 1,800 1,800
EUR/USD 1.12 1.11 1.10 1.10 USD SOFR 0.21 0.45 0.61 0.88
Brent Crude Oil (USD/bbl) 70 70 75 75
GBP/USD 1.36 1.38 1.40 1.40 USD 3M LIBOR 0.23 0.60 0.85 1.15
AUD/USD 0.71 0.70 0.69 0.68 Copper (USD/mt) 9,000 9,000 9,000 9,000
10Y US Treasuries Yield 1.80 1.95 2.05 2.15
NZD/USD 0.67 0.67 0.66 0.66 JPY Policy Rate -0.10 -0.10 -0.10 -0.10
DXY 96.2 96.6 97.0 97.0 EUR Refinancing Rate 0.00 0.00 0.00 0.00
GBP Repo Rate 0.50 0.50 0.75 0.75
USD/CNY 6.40 6.45 6.50 6.55
AUD Official Cash Rate 0.10 0.10 0.10 0.10
USD/HKD 7.80 7.82 7.83 7.84
NZD Official Cash Rate 1.00 1.25 1.50 1.75
USD/TWD 28.00 28.20 28.40 28.60
USD/KRW 1,200 1,220 1,250 1,250
CNY 1Y Loan Prime Rate 3.75 3.70 3.70 3.70
USD/PHP 50.80 51.20 51.60 52.00
HKD Base Rate 0.50 0.75 1.00 1.25
TWD Official Discount Rate 1.13 1.13 1.25 1.25
USD/MYR 4.25 4.28 4.30 4.30
KRW Base Rate 1.25 1.25 1.25 1.25
USD/IDR 14,500 14,700 14,800 14,900
PHP O/N Reverse Repo 2.00 2.00 2.25 2.25
USD/THB 33.80 34.10 34.30 34.50
USD/VND 23,100 23,200 23,300 23,400
SGD SORA 0.25 0.48 0.73 1.01
USD/INR 76.50 77.00 77.50 78.00
SGD 3M SIBOR 0.45 0.70 0.90 1.15

USD/SGD 1.38 1.39 1.40 1.40 SGD 3M SOR 0.33 0.60 0.85 1.10

EUR/SGD 1.55 1.54 1.54 1.54 SGD 10Y SGS 1.90 2.00 2.05 2.10

GBP/SGD 1.88 1.92 1.96 1.96 MYR O/N Policy Rate 1.75 1.75 2.00 2.00

AUD/SGD 0.98 0.97 0.97 0.95 IDR 7D Reverse Repo 3.50 3.50 4.00 4.50

SGD/MYR 3.08 3.08 3.07 3.07 THB 1D Repo 0.50 0.50 0.50 0.75
SGD/CNY 4.64 4.64 4.64 4.68 VND Refinancing Rate 4.00 4.00 4.00 4.00
JPY/SGDx100 1.21 1.21 1.21 1.20 INR Repo Rate 4.00 4.00 4.00 4.25

Information as of 17 December 2021 11

Source: UOB Global Economics & Markets Research forecasts Economic Playbook 2022
 Central Bank Outlook
Our Projection For Policy Rates Direction

1Q 2022 2Q 2022 3Q 2022 4Q 2022 Beyond 2022

BOE, BOK & RBNZ were The Fed will accelerate QE We are expecting Southeast Omicron has increased the We are expecting these
amongst the handful that tapering and we expect the Asian economies such as risks in monetary policy central banks to keep rates
hiked policy rates in 2021. We first rate hike in Jun. There is Indonesia, Malaysia and outlook for these emerging unchanged in 2022. BOJ is
are expecting their next hike of risk the Fed may hike any time Philippines to start their rate economies. We expect any widely seen as having little or
25bps to be around February. after QE taper ends in Mar. hike this quarter upon gradual rate hike from these central no room for normalisation
The PBOC 1Y LPR which we growth recovery. Strong banks to be modest and unlike its G7 peers and will
project to be cut by another growth & sustained domestic gradual. remain in holding pattern until
10bps in 1H22, will likely be inflation will also see CBC at least early 2023.
frontloaded. normalising its interest rates
this quarter.

BOE FED BI BOT BOJ

BOK BNM RBI ECB

RBNZ BSP SBV RBA

PBOC CBC

Information as of 04 January 2022 12

Source: UOB Global Economics & Markets Research’s forecasts Economic Playbook 2022
 The Political Landscape
Key Elections To Watch In 2022

There are a series of key elections taking place in 2022 both presidential and parliamentary
elections. Here are some selected elections to watch.

27 Mar

Hong Kong
Chief
Executive
Election

19 Mar By 21 May 26 Nov

South Australian Victorian

Australian Federal State
State Election Election
Election

09 Mar 10-24 Apr 09 May 12-19 Jun 25 Jul 08 Nov 2022

South French Philippines French Japanese US Midterm India

Korean Presidential General Legislative House of Election General
Presidential Election Election Election Councillors Election
Election Election

Information as of 03 January 2022 13

Source: Various websites, UOB Global Economics & Markets Research Economic Playbook 2022
 The Team
Global Economics & Markets Research

Suan Teck Kin, CFA Alvin Liew Heng Koon How, CAIA Julia Goh
Head of Research Senior Economist Head of Markets Strategy Senior Economist (Malaysia)
(65) 6598 1796 (65) 6598 1797 (65) 6598 1798 (60)3 2776 9233
Suan.TeckKin@UOBgroup.com Alvin.LiewTS@UOBgroup.com Heng.KoonHow@UOBgroup.com Julia.GohML@uob.com.my

Lee Sue Ann Quek Ser Leang Loke Siew Ting

Economist Market Strategist Economist (Malaysia)
(65) 6598 1792 (65) 6598 1795 (60)3 2772 6221
Lee.SueAnn@UOBgroup.com Quek.SerLeang@UOBgroup.com Jasrine.LokeST@uob.com.my

Ho Woei Chen, CFA Peter Chia Enrico Tanuwidjaja

Economist Senior FX Strategist Economist (Indonesia)
(65) 6598 1793 (65) 6598 1754 (62)21 2350 6000 ext. 81618
Ho.WoeiChen@UOBgroup.com Peter.ChiaCS@UOBgroup.com EnricoTanuwidjaja@uob.co.id

Barnabas Gan Victor Yong

Economist Interest Rate Strategist
(65) 6598 1791 (65) 6598 1799
Barnabas.GanSC@UOBgroup.com Victor.YongTC@UOBgroup.com

Tan Lena
Business Data Designer
(65) 6598 1794
Lena.Tan@UOBgroup.com

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Economic Playbook 2022
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Economic Playbook 2022