SURVEY: Global economic outlook downgraded, market optimism lagged
By Hari Kishan
BANGALORE (Reuters) – Global economic growth is expected to barely exceed 2% this year, according to a Reuters poll of economists, further warning against lowering expectations against a wave of optimism seen in financial markets since the start of the year. .
Falling energy prices, slowing inflation in most major countries, unexpected stagnation in eurozone activity and the reopening of China have led investors to speculate about a soft landing for the economy.
That optimism sent the MSCI World Index up nearly 20% from its October low. It ended at a five-month high on Wednesday, despite the prospect of prolonged central bank tightening.
More than 500 economists from 45 countries polled by Reuters from January 5 to 25 were less optimistic overall, setting their growth forecasts for this year and next year at 2.3% and 3%, respectively. % 2.1% and 2.8% in October 2022.
These economists’ forecast for 2023 is lower than that of the International Monetary Fund (IMF), which in October predicted world gross domestic product (GDP) would grow by 2.7% in 2023. The IMF is due to update its forecasts next week.
About 130 of 195 economists say the biggest risk to their outlook for global growth will be weaker than they currently expect.
According to these economists, a large part of their forecasts will depend on the impact of the policies of the world’s major central banks. They believe that it will take at least a year for the full impact of rising interest rates to be reflected in the economy.
“The market continues to see a dream scenario in which inflation peaks, then declines sharply, but does not collapse,” Rabobank market strategists said, based on data released in the first weeks of the year.
“But (…) the range of future scenarios is really wide, and yet the market settled on the optimistic median scenario, which is the least likely to happen,” they add.
In almost 80% of the economies surveyed for inflation, or 35 out of 45, forecasts for this year were revised upwards compared to the October survey, signaling a continuation of a prolonged period of tight monetary policy by central banks around the world. indicates that it should be done.
At the same time, unemployment in these economies is not expected to rise much from current relatively low levels, leaving little room for central banks to consider cutting interest rates in the near future.
A Reuters poll showed that almost all major central banks are expected to keep interest rates steady until the end of the year, bucking expectations in bond market futures with easing expected in the fourth quarter.
The European Central Bank (ECB), the US Federal Reserve (FED) and the Bank of England (BoE) will hold their respective monetary policy meetings next week, with interest rate hikes expected ahead of a possible status quo.
ECB and BoE rate hikes are expected by 50 basis points on Thursday, versus a 25 basis point hike by the Fed on Wednesday.
Citigroup economists warn: “We see good reason to believe that the global economy is still in for a difficult year.”
“High inflation and tight monetary policy are likely to cloud the outlook, and we would not be surprised to see further tightening of global financial conditions in the coming months,” they add.
More than 85% of economists, or 171 out of 196 economists polled to decide the biggest threat to global economic growth this year, are tied between tighter monetary policy (90 economists) and sustainability, higher inflation (81 economists). , divided equally.
Of these, 15 cited the war in Ukraine, eight cited falling asset prices, one cited a resurgence of the COVID-19 pandemic, and another cited a weaker-than-expected labor market.
(Reporting by Hari Kishan and Sarupya Ganguly; with Reuters bureaus in Bangalore, Buenos Aires, Cairo, Istanbul, Johannesburg, London, Shanghai and Tokyo; Editing in French by Claude Chenjou, Kate Entringer)