Mot du President January 2022

January is the time to reflect on the achievements of 2021 and look at the predictions for the year to come. With a forecasted 5.6% GDP growth year-over-year, 2021 was one of the best years on record for the US economy. Unemployment is at a close-to-record low 3.9% at the end of December 2021. Comparatively France’s GDP grew an estimated 6.25% during the same period while unemployment dropped to 8.1% at the end of September 2021, a relatively low number compared to the average prior 4 years. Predictions for 2022 range between +3.5% GDP growth for the US economy and +3.8% for France’s. All relatively good numbers, so what is the catch? … Well the problem seems to be inflation.

In 2021, US salaries increased 4.7% while the consumer price index climbed 7%, the largest 12-month gain since June 1982, thus eroding any gains achieved on other fronts. Similar situation in France with an annual inflation rate confirmed at 2.8% year-over-year in December 2021, a 13-year high, while salaries rose 0.9% over the first 6 months of the year. The pinch between the 2 seems felt by all.

On December 15, US Federal Reserve Chairman, Jerome Powell, pivoted the narrative from combating the pandemic to combating inflation, a strong signal that inflation is more persistent and higher than originally anticipated. As a result of supply and demand forces, inflation could very well be there to stay.

First continuous disruption in the supply chain caused by the pandemic creates an excess demand for the supply of goods available. This issue is complex and global. The interdependence of our economies shows here its limits and the failure of one actor has far reaching consequences. Second the political will for national autonomy (illustrated by the raising tariffs initiated by the Trump administration, continued under Biden or by Brexit in Europe) essentially cut off our developed economies from low-cost countries labor sources. Third the labor shortage in the US. The low unemployment rate may hide a grim reality of 10.4M work positions currently being vacant. The abundance of pandemic subsidies programs, the “great resignation” contributed to an unprecedented distortion between the number of job offerings and the number of job seekers. All these factors combined generate strong inflationary pressures that are not easy to curb.

On the flip side and contrary to what was experienced in the 70’s and early 80’s, we are not talking of “stagflation”. Growth forecasts remain strong, unemployment is low and stimulus programs have come to an end. Together with the FACC, we will have the opportunity in course of 2022 to develop some of these topics and share our respective experiences of managing these challenges. Remember to renew your membership and join us if you are new to our community!