TEMPE, Ariz. — The slowing global economy is on track for modest growth in 2022, but the odds of a downturn that could reduce cross-border trade next year are increasing, the airline industry’s top economist says.
Marie Owens Thomsen, chief economist at the International Air Transport Association, recently assigned a 20% risk to a recession in the near future.
Unemployment, inflation, consumer spending and the direction of China’s economy coming out of widespread COVID lockdowns will be key indicators that could become more negative next year.
“I’m thinking 2022 could be a bit of a sweet spot where people don’t really care about the inflation and they have such a strong urge to get back to some semblance of normality” in terms of travel and spending, she said in an interview following her presentation at an air cargo industry conference here last week. After that, soaring prices on goods and services could force consumers to pull back.
Experts are predicting economic growth of 3% to 3.5% this year, down from 6.1% in 2021, with the war in Europe shaving a point from projected GDP.
“It’s going to be hard to accelerate from there,” Owens Thomsen said.
Air cargo volumes were already slowing from 2021’s rapid pace when the war in Europe erupted. Global shipping demand by air fell about 5% in March and even more in April from the year prior, according to estimates by IATA and other market analysts. The IATA is expected to release figures for April this week, but the retreat in shipping volumes is extending into May because of limited factory output in China due to extreme anti-COVID measures.
On Wednesday, Xeneta’s Clive Data Services, a source of airfreight market data, said air cargo volumes in May fell 8% year-over-year, mirroring the April decline.
Some analysts expect air cargo demand to quickly bounce back as the Chinese export pipeline reopens with the end of lockdowns. But few are ready to predict how long the upward demand cycle will last and if it will carry through the peak season starting in late August.
IATA projects the airline industry will fully recover from the pandemic in 2024, which is expected to increase international capacity for freight carriage. But a recession could derail those efforts.
Owens Thomsen said in the interview that systematic headwinds such as climate change, the Russian invasion of Ukraine and protectionism pose a challenge to long-term growth.
Many economists project long-term global economic growth at 2%, but if society doesn’t solve these major issues, productivity could be less than that, she said. Change will be even more difficult because of political polarization.
“Anything inward-looking is anti-connectivity. When you step back from connectivity you’re probably going to get a worse economic outcome. People are not reaching out to each other. That’s a negative message for long-term structural growth,” the IATA economist said.
Transitioning to a sustainable energy future, Owens Thomsen said, is necessary to ensure prosperity. Then fossil fuels will no longer be a constraint on economic growth or the cause of geopolitical friction.
“Peace has been the most growth-promoting policy that anybody has ever invented. So the energy transition is the key to a better future,” she said at the CNS Partnership conference.