The biggest risk to global growth and ASX 200 returns in 2022

Property investment makes up roughly 30% of China’s GDP.

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A worried man chews his fingers, indicating a share price crash or drop on the ASX 200

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The S&P/ASX 200 Index (ASX: XJO) is slipping in early afternoon trade, down 0.52%.

Still, the ASX 200 has been delivering historic gains as Australia and the rest of the world continue to recover from the early pandemic blows. Gains driven by strong economic growth across most developed nations.

Over the past 12 months the index is up 24%, setting a new all-time high on 13 August.

Year-to-date the ASX 200 is up 11%.

And that’s just the share price moves, mind you. These figures don’t include any dividend payouts.

While this indicates that many investors should have done well over the past year, the question now is, what to expect from the ASX 200 in 2022?

The almighty consumer

For the answer to that question, we turn to Ned Bell, Bell Asset Management’s chief investment officer.

Presenting at yesterday’s ‘Bell Asset Management – Global equities market update and outlook for 2022’ webinar, Bell offered some reasons for optimism, before turning to the biggest risk.

First, on the plus side for developed nations like Australia, is the strong consumer spending outlook.

According to Bell:

Pleasingly, consumer spending has been really robust this year. Particularly in the US, where the consumer effectively represents 70% of the economy. And that rebound that we’d expected has absolutely played out… To some degree the supply disruptions we’ve seen essentially have the effect of pushing some of that growth into next year.

Pushing some of the economic growth into 2022, Bell said, can be seen as a good thing.

However, he still expects global GDP growth to slow from 5.9% this year to 4.5% in 2022, noting there’s a real risk that this could be lower. And with lower economic growth, share markets like the ASX 200 are likely to offer lower returns.

The United States, the world’s biggest economy, is forecast to grow at 4%, down from 5.7% this year.

China, meanwhile, is forecast to see growth fall from 8.1% in 2021 to 5.5%, or less, next year.

And that, according to Bell, is the biggest risk to the global growth outlook for 2022.

The biggest risk to global growth and ASX 200 returns

Bell noted that GDP growth in the world’s second largest economy dropped from 7.9% in the second quarter of 2021 to only 4.9% in the third quarter just past.

China’s real estate woes are a particular worry for the global GDP growth outlook. Bell pointed out that property investment makes up roughly 30% of China’s GDP.

“It’s a big part of the Chinese economy,” he said. “As a reference point, the property market in the US, pre the GFC was about 18% at its high.”

Bell continued:

It’s no secret that China’s GDP growth has been a huge contributing factor to the global economy, particularly in the last 5 years. But one of the outcomes of what’s happening in the property market in China, as we speak, is that as that growth rate starts to moderate, it will eventually filter through to global GDP growth.

I’m not so much talking about China Evergrande Group (HKG: 3333) or the particular companies that have financial issues themselves. It’s more about to what extent that depresses growth [in major economies].

Most ASX 200 companies – think the big miners and banks – will perform better when global GDP is growing quickly, as it has been over the past 18 months.

So, it’s worth keeping an eye on how things play out in China over the coming weeks.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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