ECONOMIC ENVIRONMENT

2021 was marked by a strong hope of overcoming the coronavirus pandemic. This hope was realised in some respects, but not in others.

The year got off to a bumpy start in Europe, with the economic consequences of SARS-CoV-2 due to lockdowns weighing on growth as the year got under way. Both in the Eurozone and in Switzerland, gross domestic product once again went into reverse. The US economy, on the other hand, benefited from large-scale fiscal stimulus and was able to post strong growth in the first three months of the year.

The spring and summer months were marked by a slowdown in the spread of the virus. The warmer temperatures and vaccination campaigns were not only beneficial for health, but also helped the service sector to catch up significantly. Economic growth in 2021 was therefore driven essentially by the service sector, as global manufacturing suffered from acute material shortages. This gave rise to a unique circumstance in that despite full order books, industry was unable to significantly increase its output and even experienced a decline in production. The manufacturing sector was even a burden at times. Industry was therefore unable to offer opposition to the rapidly rising rate of infections at the end of 2021 and the service sector that was suffering again as a result. The risk of recession in Europe increased again in the final quarter of 2021 as a result, while the US economy continued to grow strongly at the end of the year thanks to a lower rate of new infections.

Material shortages, combined with higher commodity prices, for oil and gas in particular, led to a significant increase in inflation rates. In the USA, but also in Germany for example, inflation rates were higher than they had been for 30 years. Even if consumer price increases should be significantly lower once again in 2022, the risk of second-­round effects and a firming inflation trend has increased. This is precisely why the US Federal Reserve decided to tighten monetary policy. Monthly securities purchases were curtailed starting in November and will expire in March 2022. Then the first interest rate hike can be expected. The European Central Bank (ECB) has at least verbally heralded the turnaround in interest rates, only the Swiss National Bank (SNB) is still keeping a low profile.

Whereas the global stock markets made a homogeneous start to the year, a clear division emerged between industrialised nations and emerging markets from February 2021 onwards. While China significantly dampened its capital market through intensive regulatory measures, many emerging markets had great difficulty dealing with the economic consequences of the global pandemic. The challenges faced by Western industrialised nations lay mainly in supply chain disruption, which led to historically high producer prices, but also to cuts in production, especially in the manufacturing sector. State intervention, together with low interest rates, helped to mitigate the economic impact. 

On the capital markets, the subsequent unusual rise in inflation and the expansion of negative real yields once again forced a shift in attractiveness towards equities. Markets in the USA, Europe and Switzerland saw price gains of between 20 and 25 per cent, while emerging markets closed the year with a negative return.

The renewed sharp increase in the spread of the virus, accompanied by a new and highly contagious variant, caused stronger price fluctuations in the fourth quarter. Once again, pressure was felt in particular by those companies whose business models were strongly impacted by lockdown measures. Many companies, however, demonstrated a high level of agility and the resulting robust profit developments during the final quarters. This also ensured that market participants began to look ahead towards 2022 – with a belief that the most difficult economic challenges had been overcome, and that a constructive new financial year was in sight.