Say that sovereign spreads widen by 300 basis points, like they did in last decade’s debt crisis. Bloomberg Economics model shows that could chop more than 4 percent from economic output by the end of 2022, sending the euro area into recession and reviving concerns about its viability.

Feeling The Brexit Impact
Negotiations between the U.K. and EU over the Northern Ireland Protocol—a doomed attempt to square the circle of an open land border and closed customs union—are set to rumble on into 2022. Getting to yes will be tough.

What happens if negotiations break down? Based on past Brexit flare-ups, the uncertainty would hit business investment and undermine the pound, boosting inflation and eroding real incomes.

In a full-on trade war, tariffs and transportation logjams could push prices even higher.

The Future Of Fiscal Policy
Governments spent heavily to support workers and businesses in the pandemic. Many now want to tighten their belts. The pull-back of public spending in 2022 will amount to some 2.5% of global GDP, about five times bigger than austerity measures that slowed recoveries after the 2008 crisis, according to UBS estimates.

There are exceptions. Japan’s new government has announced another record stimulus and China’s authorities have signaled a shift to supporting the economy after a long stretch of holding the purse strings tight.

In the U.S., fiscal policy swung from boosting the economy to slowing it in the second quarter of 2021, according to the Brookings Institution. That’s set to continue next year, though President Joe Biden’s child-care and clean-energy investment plans will limit the drag if they make it through Congress.

Food Prices And Unrest
Hunger is a historic driver of social unrest. A combination of Covid effects and bad weather has pushed world food prices near record highs, and could keep them elevated next year.

The last food-price shock in 2011 triggered a wave of popular protests, especially in the Middle East. Many countries in the region remain exposed.

Sudan, Yemen, and Lebanon—already under stress—all look at least as vulnerable today as they did in 2011, and some are more so. Egypt is only marginally better-off.

Popular uprisings are rarely localized events. The risk of broader regional instability is real.