Forecast Overview 

The next year will see slower economic growth and more cyberattacks worldwide, along with increased Western tensions with China, Iran and Russia.

Annual

<h3>Global Economic Growth Remains Strong, but Slows&nbsp;</h3><p>The global economy will continue its uneven recovery amid progress in COVID-19 vaccinations in most developed countries, lagging vaccinations in much of the rest of the world and the threat of new outbreaks. While global growth will be relatively strong, it is likely to slow from 2021 due to setbacks from the pandemic, persistent supply chain disruptions, higher inflation and tightening financial conditions, as well as constraints on public spending in many countries as they cope with high levels of debt and increased interest rates. U.S. growth will moderate in 2022 after unprecedented fiscal stimulus in 2020-2021. The United States will probably not feel the impact of increased infrastructure spending until after 2022 given project lag times. In addition, the fiscal stimulus plus lax monetary policy have left the United States on a high but unsustainable growth path that will increase inflation and lead the U.S. Federal Reserve to increase interest rates beginning in 2022, which will slow down GDP expansion. In China, restrictions on lending to private development firms will impact overall growth as property investment and services account for nearly 30% of GDP. The property slowdown will also impact provincial revenues from land sales and spending levels. As a result, China&rsquo;s growth in 2022 may end up being less than its 2021 target of above 6%. Low vaccination rates and widespread scarring that has reduced potential output are likely to delay the return to pre-pandemic GDP levels in many emerging markets and developing countries. In addition, the omicron variant of COVID-19 and other potential variants could worsen supply-side bottlenecks affecting all economies worldwide.&nbsp;</p><h3>Continued U.S.-China Tensions on Trade and Tech</h3><p>Economic tensions between the United States and China will likely remain high in 2022 as the former restricts the latter&rsquo;s access to Western technology and keeps high tariffs on Chinese goods. The administration of U.S. President Joe Biden has shown little willingness to ease some of his predecessors&rsquo; restrictions on Chinese trade and will probably launch a new Section 301 investigation into Chinese industrial subsidies to use as leverage in trade talks with Beijing. However, China will continue heavy state support for strategic industries and the Biden administration may use the investigation to modify which Chinese goods are subject to higher tariffs. The White House&rsquo;s continued use of tariffs as a policy tool likely means that the restrictions put into place will last years, if not decades. Failure to make progress in talks may lead to an increase in tariffs on goods in sectors China directly supports, which includes the steel and green technology sectors, and a decline in sectors where China&rsquo;s support is more limited, such as low-end manufacturing. The United States will also expand some of its restrictions on China&rsquo;s access to foreign technology, particularly in high-tech sectors including AI, robotics and semiconductors. The U.S. strategy will only result in China doubling down on its techno-nationalist strategy, making the Chinese business environment all the more complicated for Western firms.&nbsp;</p><h3>More Cyberattacks in More Places</h3><p>Financially-motivated cyberattacks will grow rapidly in 2022, particularly as criminals increasingly target 5G, cloud computing and IoT devices, causing more disruptions and an increase in new cybersecurity requirements in Western countries. U.S. diplomatic pressure on the Kremlin and law enforcement to crack down on Russian ransomware gangs, along with offensive cyber operations pressure on cybercriminals, will not reverse the growing number of cyberattacks (particularly ransomware attacks) against U.S. organizations. The U.S. campaign may disrupt some activities of individual groups or force them to reconsider attacking U.S. critical infrastructure. But the plethora of cybercriminals and growing cybercrime marketplace will ensure 2022 will see a continued uptick in ransomware attacks. Many smaller groups have also shown little interest in stopping attacks against companies operating in sectors the United States defines as critical infrastructure. The growth in ransomware attacks will result in new regulations around ransom payments and cybersecurity requirements, adding more regulatory hurdles and higher compliance costs for many Western organizations. Stronger U.S. cybersecurity requirements and the U.S. retaliation campaign will lead to cybercriminal organizations broadening the horizon to increase the number of attacks in other regions, including Europe, the Middle East, South Asia and Asia-Pacific. The ransomware plague that has infected the United States will, in turn, become more global as multilateral efforts to reduce this activity continue to face difficulties.&nbsp;<br />&nbsp;</p>

Global Trends

<h3>A Limited U.S.-Iran Nuclear Deal&nbsp;</h3><p>U.S.-Iran talks will likely yield a limited deal that sees Tehran reduce some of its nuclear activities in exchange for sanctions relief. The United States and its European allies&rsquo; strong desire to slow down Iran&rsquo;s nuclear development, along with Tehran&rsquo;s strong desire for sanctions relief and avoiding a major conflict, will keep compelling both sides to return to the negotiating table. But nuclear talks will continue to progress slowly in a tense environment driven by divergent priorities that will make only the most basic of agreements possible. Such a limited deal would likely see either the United States unfreeze some Iranian assets in exchange for Iran halting nuclear program developments, or the United States and Iran both returning to a basic level of compliance with the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA). Iran, however, will not scale back its nuclear program or aggressive regional behavior until a potential deal is reached in order to maintain its negotiating leverage. And this &mdash; combined with the Iranian team&rsquo;s increasingly high expectations for Western concessions &mdash; will complicate talks and keep them at risk of falling apart in 2022, which would raise the risk of regional conflict (particularly between Israel and Iran). With a limited U.S.-Iran deal likely but far from certain, rapprochement talks between Iran and the Arab Gulf states will also probably remain at an exploratory phase as Iran&rsquo;s neighbors seek to ensure their own security regardless of how JCPOA talks play out.</p><h3>The China-Taiwan Divide Widens</h3><p>China-Taiwan tensions will deepen amid growing Western support for Taiwan. But Beijing will not act militarily against Taiwan, and Taiwan&rsquo;s global semiconductor trade will remain secure. As the United States and Europe pivot strategically to Asia, their support will grow for Taiwan&rsquo;s de facto independence via freedom of navigation operations and strengthened (though still unofficial) diplomatic relations. China will punish Taiwan supporters in the West with trade and investment restrictions and diplomatic campaigns. Similarly, Taiwan and China will levy more political laws against the other, like Taiwan&rsquo;s efforts to stem brain drain in its vital tech industries and China&rsquo;s new policy of punishing politically errant Taiwanese businesses. Despite its concerns about Taipei, Beijing will eschew military action that could isolate China diplomatically and jeopardize its access to Taiwan&rsquo;s cutting-edge semiconductor exports, which China needs for critical tech industries like AI and autonomous vehicles. Beijing&rsquo;s trade restrictions against Taiwan-supporting nations will further entrench Western security and human rights concerns, decreasing chances for rapprochement with China. In Taiwan, greater Chinese political coercion will increase the odds of the ruling Democratic Progressive Party (DPP), which has pushed to protect the island&#39;s sovereignty from China, in 2022 local elections. If those elections yield significant DPP gains, Beijing could further increase political pressure on Taiwan, even as formal aggression remains unlikely. Chinese incursions into Taiwan&rsquo;s air defense zone could prompt an incident (like an aerial collision) that brings brief trade disruptions, but both sides will deescalate to avoid a broader conflict.</p><h3>Increased Coordination Between France and Germany&nbsp;</h3><p>Policy coordination between France and Germany will increase, opening the door to more flexible EU fiscal rules, continued support for the energy transition and a more protectionist approach to investment. Greater ideological alignment between France&rsquo;s moderate government and Germany&rsquo;s pro-EU coalition will result in more consistent policy cooperation with Italy and Spain and an overall movement of the European Union&rsquo;s axis of power to the south of the Continent. Paris, Berlin, Rome and Madrid will push to make the bloc&rsquo;s sovereign debt and fiscal deficit rules more flexible, especially when it comes to spending on climate-friendly reforms and the digitalization of the economy, which will open the door to a prolonged period of expansionary economic policies. While a debt crisis is unlikely in 2022, these expansionary policies mean that many eurozone members will not substantially reduce their debt burdens in the short-to-medium term. France and Germany will also pressure the European Commission to increase oversight of foreign takeovers in strategic sectors of EU economies and push for laxer antitrust rules within the European Union to create &ldquo;European champions&#39;&#39; in multiple sectors to compete with rivals from the United States. and China. Northern European countries like the Netherlands and Sweden will push against most of these policies but, left in the minority, they will only manage to water down or delay some of them with limited power to block them. Progress will be more modest on the security front, as Berlin will be skeptical of Paris&rsquo; push for deeper military integration in the European Union. Central and Eastern European governments will also be reluctant to create new ways of cooperation that could rival NATO.&nbsp;</p><h3>The Taliban Will Struggle to Stabilize Afghanistan</h3><p>The Taliban will face significant economic, social and militant pressure as it attempts to consolidate control over Afghanistan. Taliban leaders in Afghanistan will struggle to balance domestic and foreign expectations as they shape new regulations and formalize a new government and constitutional structure. The Islamic State Khorasan Province will prove the most immediate domestic threat, as the group is likely to expand its operations beyond northeastern Afghanistan into key southern and western cities. Resurgent Tehrik-i-Taliban Pakistan activity in neighboring Pakistan will also test Kabul&rsquo;s relations with Islamabad, its key economic partner and transport corridor to the world. Pakistan and China will increase investment and transportation infrastructure in Afghanistan, but this will remain constrained by the Taliban&rsquo;s inability to ensure stability and security for foreign workers. International aid will also remain circumscribed and any discussion of normalization will depend on the outcome of the proposed Loya Jirga (or grand council) and the structure of a consultative government, as well as Taliban regulations on women&rsquo;s rights. If the composition of the new government fails to effectively balance the interests of ethnic minorities in Afghanistan and conservative Pashtun rural tribals, it could trigger expanding social instability in cities throughout the country, along with expanded activity from both Islamist militants and anti-Taliban fighters from the nascent National Resistance Front.&nbsp;</p><h3>Greater Regulatory Uncertainty in China</h3><p>China&rsquo;s regulatory campaigns will broaden to more industries that process data, provide essential goods and services, exacerbate economic risks and challenge Beijing&rsquo;s cultural conservatism &mdash; raising global business uncertainty and compliance risks. The Chinese government will continue to build policies upon the foundation of the Cybersecurity Law, Data Security Law, and Personal Information Protection Law to strengthen its control over growing digital services industries. But compliance uncertainties will persist because these regulations are based on broad definitions of national security. Sectors that generated systemic economic risks in 2021 (like real estate and fintech services) will be subject to more credit restrictions, merger and acquisition regulations, and leadership investigations, as well as stricter data monitoring in 2022 as President Xi Jinping seeks to stabilize the Chinese economy ahead of the start of his third term in November. Consumer price inflation and supply chain irregularities will push Beijing to intervene in markets for essential goods (e.g. food and pharmaceuticals) to stabilize prices, boost consumption, and support small- and medium-sized enterprises. Xi&rsquo;s efforts to fight demographics, societal disloyalty and cultural &ldquo;Westernization&rdquo; to secure China&rsquo;s national rejuvenation (as a leading superpower) in a tense international environment will prompt regulatory scrutiny of online content, e-commerce and entertainment, among other avenues of ideology. This will breed business uncertainty and push private investment into safer sectors crucial to Beijing&rsquo;s development plans, like semiconductors and renewable energies. Compliance burdens for data-heavy firms will multiply as Western laws limiting foreign political influence clash with Beijing&rsquo;s data sovereignty policies. And though Beijing will push some economic reforms, like incremental IP protections, Western and Chinese sectoral restrictions will outpace reforms, generally eroding the business environment. Nonetheless, state-led investment and the global demand for Chinese exports will continue to buoy China&rsquo;s economy, albeit at a slower pace of growth than in 2021.</p><h3>Elevated Tensions in Eastern Ukraine</h3><p>Disputes over the Minsk agreements and Russia&rsquo;s demands for security guarantees will keep tensions in eastern Ukraine elevated, but a Russian invasion will not materialize. Seeing a credible military threat against Ukraine as leverage against the United States and the critical lever slowing its declining influence over Kyiv, Russia will maintain its build-up of forces, infrastructure and equipment near Ukraine&rsquo;s borders to pressure the West to make concessions in European security talks. While the United States will hold talks with Russia, NATO will not formally disavow the prospect of Ukraine&rsquo;s membership in the alliance. But discussions on certain weapons systems, along with incident avoidance and management measures, will dissuade Russia from a new intervention in Ukraine. Russia will push Kyiv to enact the Minsk Protocol on its terms, and Western leaders will return to reassuring Russia that the Minsk agreement should be enforced. But Kyiv&#39;s opposition and the separatists&rsquo; intransigence will make a real change on the ground unlikely. Moscow will likely authorize the separatists to maintain regular cease-fire violations to put Kyiv in a bind, with both its action and inaction creating political and military risks. If the Ukrainian military responds forcefully to separatist shelling, Moscow can portray Kyiv as the aggressor and justify Russian intervention. But if Ukraine does not step up its counter-shelling, the Ukrainian military will suffer disproportionate casualties that will be politically damaging for President Volodymyr Zelensky&rsquo;s administration. While less likely, Russia&rsquo;s buildup could prompt additional Western military and other support for Kyiv while security talks founder, which would convince Moscow to conduct a military incursion against Ukraine. Such a scenario could include an attempt to seize and occupy large pieces of Ukraine, or involve a limited incursion or targeted missile strikes on the Ukrainian military intended to force a political settlement.&nbsp;</p>

2022 ANNUAL FORECAST: A GLOBAL OVERVIEW

Forecast Overview

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