THE hunt for economic growth has been essential in most societies for hundreds of years. So, if I say that economic growth will be an important factor in 2022, then that prediction seems less epoch-making. However, it is my assessment that by next year, investors’ focus will be incredibly much more oriented toward economic growth, simply the classic gross domestic product (GDP) growth, which is also an indication of what the financial markets will particularly react to next year.

I do not always consider GDP growth to be the most responsive factor despite the perpetual appetite for higher economic growth. The current year has already shown strong reactions to other important factors included in the financial markets equation such as inflation and interest rate expectations.

Regarding the equation, I belong to the fraction in the financial market that has assessed that rising inflation from the start of the year is temporary and can be explained. Of course, I respect the concern that arises among investors as well as some good arguments about why one should be concerned about the sudden much higher inflation. However, both the bond and equity markets have already negatively reacted to inflation some months ago and I argue that there is now a reasonably good chance that inflation will fall to a lower level again. If that expectation comes true, then investors’ fears should also fade out.

By this, I mean that inflation brings less imbalance into the equation and hopefully inflation will be a significantly more manageable risk factor over the next 18 months. However, I see it as a high probability that there will be a growing demand for wage increases in the service sector as well as within business groups with a high proportion of unskilled labor force — whether this contributes to an imbalance in the equation depends on if one, as an investor, fears wage inflation or assesses the increased purchasing power as the most positive factor.

Inflation falling to a more normal level could immediately be expected to push interest rates down again. However, I am not so convinced this will happen as the two leading central banks in the United States and in the eurozone reverse the highly expansive monetary policy. Furthermore, I believe that next year, there will be clear guidance concerning coming interest rate increases, probably materializing in 2023.

This can cause nervousness among investors and contribute to imbalance in the equation; however, the financial markets have absorbed the first signals of a monetary tightening quite well. With an incredibly wellconsidered communication from the central banks to the financial markets, it is my assessment that it is possible for the stock market to get through a monetary tightening, without major damage.

However, if equity investors do not become too nervous while interest rates rise, then it will just

be right if GDP growth returns to a growth track, another reason why the GDP growth will gain extraordinary focus in 2022.

Before the Covid-19 crisis, the GDP growth in the European Union, particularly in the eurozone, was slowing-down significantly, even in Germany. Almost unsurprisingly, the Italian economy is one of the weakest parts in the chain and the country’s economy really suffered from the Covid-19 lockdowns. This is why Italy receives a large chunk of the EU’s giant post-Covid-19 growth package and the allocation has now been approved. A very good timing if the financial markets increase focus on the GDP growth next year, as I argue, will happen.

Measured in 2018 prices, the growth package represents EUR 750 billion in total, though in current prices, the amount is around EUR 810 billion. Italy alone has got around EUR 200 billion in allocation, which represents 12 percent of Italy’s total GDP in 2020.

How Italy plans to spend the money has been approved by the EU Commission, though the European Union demanded that around half of the funds should be allocated to new green investments, digitization and some infrastructure investments.

Some investments will be outright positive for the economy, though I still fear that too large a part of the rescue package will just be spent repairing the economy, not bringing it forward. This also reflects my view concerning the whole southern part in Europe as it is where the money flows from the growth package.

I expect investors to react positively only if the funds are used wisely and I fear that the stock markets could explore a “growth package fatigue” as the help is coming too late, actually almost not linked to the crisis anymore. The type of GDP growth that I expect the stock markets to desire is a healthy private sector growth and in addition, highquality growth generated from the rescue funds — my concern is that Europe will deliver just as much of this as it did prior to the Covid-19 crisis.