BENGALURU: According to a Reuters poll of economists forecasting global economic growth to barely reach 2 percent this year, they said the greater risk was a further downward revision of their view, contrary to widespread optimism in markets since the beginning of the year.
Declining energy prices, a slowdown in inflation in most economies from decades-high levels, an unexpectedly resilient economy in the Eurozone and the reopening of China’s economy have led traders to speculate that the downturn will be milder.
That pushed MSCI’s all-country world index of equities up nearly 20 percent from October’s lows, reaching a five-month high on Tuesday despite increased risk that central banks will keep interest rates high longer, rather than lower. to lower.
But economists as a whole were much less optimistic, cutting growth forecasts for this and next year from 2.3 percent and 3.0 percent, respectively, in an October 2022 poll to 2.1 percent and 2.8 percent, respectively. Their more sombre mood has soared in recent weeks in light of some notable upgrades by banks.
The growth forecast for 2023 is well behind an International Monetary Fund forecast of 2.7 percent that was published in October and will be updated next week. Reuters’ latest poll of more than 500 economists from 45 economies was conducted from January 5 to 25.
More than two-thirds of respondents, 130 out of 195, said the greater risk to their global growth outlook was that it would be even slower than what they currently expect.
Much will depend on how much success the world’s major central banks can claim from roughly a year of historically aggressive rate hikes that are not yet over. It may take a year or more for the full impact of interest rate hikes to become visible in economies.
“The market continues to count on a dream scenario in which inflation has peaked and then falls sharply, but does not continue downwards,” said Rabobank market strategists, based on relatively good news in data released in the first weeks of this year. released.
“However…the range of scenarios ahead is really broad, and yet the market seems to have settled for a happy median that seems to be the least likely to happen.”
GRAPH: Reuters Graphic Poll on Global Growth Outlook (https://fingfx.thomsonreuters.com/gfx/polling/zdvxdrzrjvx/Reuters%20poll%20graphic%20on%20the%20global%20growth%20outlook.PNG)
Consensus forecasts for 2023 gross domestic product growth for more than 80 percent of the economies surveyed were revised down from the October poll.
Inflation forecasts for this year in nearly 80 percent of the surveyed economies, 35 of the 45, were upgraded from the October poll, suggesting that central banks around the world are tightening monetary policy for an extended period of time.
At the same time, unemployment rates were not expected to rise much from a relatively low level.
That suggests that central banks have no room in the near term to even consider cutting interest rates.
Almost all major central banks were expected to keep interest rates stable until the end of this year, a conclusion that also contradicts interest rate futures, which expect an easing in the fourth quarter.
The European Central Bank, the US Federal Reserve and the Bank of England were expected to raise and then hold interest rates at each of their next two policy meetings.
While the ECB was expected to make larger rate hikes of 50 basis points, the Fed would go for smaller rate hikes of 25 basis points.
The BoE would raise its bank rate by 50 basis points to 4.00 percent on February 2, then raise it a quarter of a percentage point in March before pausing.
“We see good reason to believe that the global economy has another difficult year ahead of us,” said Citigroup economists.
“High inflation and tight monetary policy seem likely to plague the outlook, and we wouldn’t be surprised to see a renewed tightening of global financial conditions in the coming months.”
GRAPH: Reuters graphic poll on key central bank interest rates globally (https://fingfx.thomsonreuters.com/gfx/polling/znpnbzrzmpl/Reuters%20poll%20graphic%20on%20the%20key%20global%20central%20bank% 20interest%20rates.PNG)
When asked to list the biggest threat to global economic growth in 2023, more than 85 percent of economists, 171 of 196, were almost evenly split between tighter monetary policy (90) and sustained higher inflation ( 81).
Fifteen pointed to the war between Russia and Ukraine, eight nodded to a correction in asset prices, one said a resurgence of COVID-19 and one said weaker-than-expected labor markets.
(For other stories from Reuters’ global economic poll:)