For nearly two years, the pandemic has obscured the global outlook, making traditional long-term economic planning for governments challenging. While a vaccine-led vision for re-emerging formed intermittently across the world, we’ve learned progress is fragile as variants arise and risks remain.
An early casualty of the ongoing pandemic in 2022 was the World Economic Forum Annual Meeting, famously held in the snow-covered mountains of Davos, which will now be postponed until the summer due to health concerns. However, the Civil Servant Leaders Summit, hosted by Global Government Forum and the Singapore Government, was planned to take place virtually and still went ahead last week, enabling a frank discussion about the challenges and opportunities ahead.
During this event, and as we kick off another year, Mastercard data helped to provide some insights into last year and the one in front of us. Undoubtedly, the pace and form of digitisation will remain a key theme in 2022 for governments and the communities they serve. One thing we can be certain about is the positive impact digitisation has had on economies, with businesses’ ability to digitise and find new ways of trading relieving pressures and reliance on the State. That is not to say there has not been significant socio-economic impact, but digitisation has also enabled governments to reach those who need support faster and in a more targeted way. Digital interactions have also generated data, creating a growing opportunity for governments to quickly understand what is working and what is not, enabling governments to assess risks, allocate resources and be responsive.
Analysing data is a major focus area for Mastercard, and its Government Engagement team has been working in more than 55 countries to support governments with their digitisation journeys in a number of ways, including through data analytics and insights.
In December 2021, the Mastercard Economics Institute published “Economy 2022”, looking at critical trends around the world, based on aggregated and anonymized sales activity across the Mastercard global network and other sources. It assesses how five fundamental factors — savings and spending, supply chains, digital acceleration, global travel, and a growing list of economic risks — will continue to shape the global economy this year, as well as offering insights on specific countries and regions. So what does 2022 have in store:
Consumer spending of built-up savings could contribute additional 3 percentage points to global GDP growth in 2022. Household saving rates soared in 2021, nearly doubling compared to before the pandemic. How quickly or slowly consumers spend from their savings – using their larger bank account balances, investments and lower debt burdens — will have a ripple effect on the global economy. If savings are used quickly, that savings-fuelled growth could be closer to a 4.5 percentage point boost to global gross domestic product. That said, we expect economic growth to slow in 2022 after the bounce-back in growth in 2021 as government stimulus fades and inflation rises, particularly in advanced economies.
Record-breaking rewind in the household-spending shift from goods to services rotates back. In 2021, a significant increase in consumer savings, coupled with mobility restrictions, caused a massive 27-year rewind in the secular shift to services. Pre-crisis, the share of spending on goods had been declining at a gradual pace of -0.3% per year, spanning decades, as the services economy proliferated. The pandemic — which closed barber shops and left taxis running empty — caused a major disruption to this trend, sending the share of goods spending from 39% to around 47% at its peak, roiling the services economy while simultaneously burdening the supply chain. With cupboards bursting, rotation back into services is well underway, already roughly 6 percentage points below the peak. Assuming vaccination and booster programmes stave off the need for isolation restrictions in most countries, we expect the balance to normalize in 2022 as borders open and services become more accessible and desirable again. We are also working with governments taking pre-emptive action to nudge consumer behaviour, for example using targeted digital stimulus packages to drive footfall back to high streets and cities, and to boost weakened sectors – accelerating recovery.
20% of the digital shift in retail stays put — reshaping how and what consumers buy. In 2021, we estimated the “e-conomy” was here to stay. Our findings in this year’s report indicate that roughly 20% of the peak in the shift to e-commerce has stuck permanently for the retail sector. With the global shift to digital showing significant momentum, we discovered a growing trend: the rise in e-commerce subscriptions, such as wine clubs, weekly grocery delivery and clothing. Nearly 88% of countries across 32 markets saw a surge in subscription services in 2021 compared to the previous year. Notably, car companies, virtual workout partners, bike rentals and pet services were among a slew of businesses getting into subscription models. Cloud-based computing which allows for a seamless payments experience has been a key enabler for the subscription economy’s growth, resulting in a rising number of new businesses and consumer interest. Governments have supported small businesses to benefit from this trend through digitisation grant schemes.
Leisure travel recovery continues as international travel opens up, with medium- and long-haul flights set to gain ground in 2022. The return to travel in 2021 was on full display on our roads and in airports, but continued growth hinges on containing virus variants that drive travel bans. We have seen a swift rebound in domestic and short-haul travel (less than 600 miles) while medium-haul travel (600-1,800 miles) continues to be lifted by fewer travel restrictions, and long-haul travel trails behind. In 2022, with the risk of new COVID variants remaining high, we expect governments to respond with more focused security measures, such as mandating vaccines, rather than broad closures of key travel corridors. The travel industry is one the sectors hardest and hit, and with 1 in 10 jobs globally reliant on the sector before the pandemic, we are working with many governments to assess and act to support tourism recovery.
Risks remain with the potential to disrupt the global economy. New COVID variants, like omicron pose the biggest immediate risk, as consumer sentiment and behavior will be a major driver for economic recovery and growth. We’re also keeping an eye on nearly a dozen additional risks that have the potential to derail recovery, including a sharp recalibration of housing prices that have appreciated 66% over the past two years, a surge in oil prices, fiscal cliffs in advanced economies, and international tariff wars.
2021 was not the return to normal that many yearned for, but it was a period of tremendous progress: economic growth, vaccine advances and digital transformations that have made businesses large and small more resilient. Whilst governments rightly remain focused on the range of risks, data insights driven by accelerated digitization allow for a smarter response which reflects the opportunities for economic growth and development.
Read the full report – Economy 2022: An in focus view of the year ahead
Andreas Spycher, Principal – Mastercard Data & Services
Andreas Spycher is Principal at Mastercard and based in Singapore. In this role, his focus lies on leading the development of Mastercard Data & Service solutions in the governments, government agencies and tourism organization. His aim is to support and consult these customers to build strong disbursement programs, improve their digital collection services, build and enhance smart city functionalities and help to grow tourism revenues.