Danger of $4 trillion hole in global outlook haunts IMF: Eco Week

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Global finance chiefs are gathering in Washington in the coming days with the warning of a possible $4 trillion loss in global economic output ringing in their ears.

It’s Germany’s size hole in the growth outlook through 2026 that International Monetary Fund chief Kristalina Georgieva identified last week as a looming risk.

She will host central bankers, finance ministers and others as they face the fallout on the global economy from soaring inflation, aggressive monetary policy tightening, rising debt and the biggest war on earth. in Europe since World War II.

That the IMF and World Bank Annual Meetings will be held entirely in person for the first time since Covid-19 emerged in early 2020, showing progress in containing the pandemic, will be of limited comfort being gave other headaches.

The current confluence of economic, climate and security crises makes it unlike anything global policymakers have seen since 1945. Yet some elements, such as the havoc in emerging markets caused by interest rate hikes from the Federal Reserve in the early 1980s, correspond to the present. hard situation.

“The big question for the meetings is, ‘What are we going to do in terms of an institutional response to this, beyond the status quo,'” said Masood Ahmed, president of the Washington-based Center for Global Development, the last week.

Here is a brief overview of some of the issues officials will face:

  • World Economic Outlook: The IMF publishes them on Tuesday. Georgieva said last week that the global growth forecast of 2.9% for 2023 would be lowered.

  • Ukraine: The country invaded by Vladimir Putin’s forces in February will remain the center of attention, from the impact of a depleted grain harvest to Russia’s gas shortage on Europe. The IMF board on Friday approved a $1.3 billion loan for Ukraine, its first loan to the nation since early March.

  • Food prices: The IMF’s executive board last month approved a new “food shock window” for emergency financing to help countries hit by rising agricultural costs.

  • UK: The country remains vulnerable after market turmoil forced a partial U-turn on a package of tax cuts from the government of new Prime Minister Liz Truss that was rejected by the IMF.

  • The Fed: US tightening hurts other economies. IMF calculations show that 60% of low-income countries and a quarter of emerging markets are in or near debt distress.

  • Climate: The crisis is only getting worse, as recent disasters ranging from floods in Pakistan to a hurricane that hit Puerto Rico and Florida have shown.

Elsewhere this week, a faster reading of core inflation in the US, financial stability news in the UK, a rate hike in South Korea and the Nobel Prize in economics will be among the highlights. .

What Bloomberg Economics says:

“When foreign finance ministers and central bankers gather in Washington for the World Bank and IMF meetings next week, many might argue that the rest of the world can’t afford any more Fed hikes.”

–Anna Wong, Andrew Husby and Eliza Winger. For a full analysis, click here

Click here to see what happened last week and below is our summary of what is happening elsewhere in the global economy.

American economy

In the United States, the consumer price index is the highlight of the coming week. Thursday’s Labor Department report will offer Fed officials some insight into evolving inflationary pressures after a series of huge interest rate hikes.

Economists estimate the CPI rose 8.1% in September from a year ago, marking a deceleration from the 8.3% annual increase the previous month as oil prices energy have calmed down. However, excluding fuel and food, the so-called core CPI continues to accelerate – it is expected to show an annual gain of 6.5%, from 6.3% in August.

An increase of this magnitude in the base measure would correspond to the biggest advance since 1982, illustrating stubborn inflation and keeping the pump primed for a fourth consecutive increase of 75 basis points at the Fed’s November meeting.

Investors will hear from a number of U.S. central bankers over the coming week, including Vice Chairman Lael Brainard and regional Fed chairs Loretta Mester, Charles Evans and James Bullard. Minutes from the Fed’s September meeting will be released on Wednesday.

Other data includes figures on prices paid to US producers. So-called wholesale inflation has shown signs of moderating as commodity prices weaken amid concerns about a global economic slowdown.

The week will be capped by retail sales data. Economists are forecasting modest monthly growth in September, helped by a recovery in motor vehicle purchases. Excluding automobiles, the value of retail sales is seen falling for a second month. Since the numbers are not adjusted for inflation, the data suggests that demand for commodities slowed in the third quarter.

Asia

Bank of Korea Governor Rhee Chang-yong may resort to a mini U-turn on the scale of rate hikes. While he’s back to the usual quarter-point increase in August, many economists see him opting for a twice as big move on Wednesday as rapid Fed tightening puts pressure on the won.

The Monetary Authority of Singapore is expected to tighten for a fifth consecutive meeting, while the State Bank of Pakistan is expected to keep the benchmark rate steady for a third.

Deputy Governor Luci Ellis could shed light on the Reserve Bank of Australia’s latest thoughts on policy following its pivot to smaller hikes.

Bank of Japan Governor Haruhiko Kuroda and Finance Minister Shunichi Suzuki will be in Washington for IMF meetings, with the yen’s movements still closely watched.

Meanwhile, China is being hit by a rebound in Covid-19 cases after the weeklong National Day holiday, just as the country’s top leaders gather in Beijing for a meeting with President Xi Jinping.

Europe, Middle East, Africa

The week begins Monday with the announcement of the Nobel Prize in Economics. The prize was established by the Riksbank of Sweden in 1968, adding a sixth category to the existing prizes for physics, chemistry, medicine, peace and literature. Three US-based scholars were honored in 2021 for work using experiments that draw on real-life situations to revolutionize empirical research.

The Bank of England’s Financial Policy Committee will take center stage on Wednesday, a sure sign that the UK faces significant problems.

The panel, responsible for the emergency response to prevent a bond market spiral last month, will publish a report from its last meeting. This may give some insight into whether officials see a risk of further turmoil that has already plagued pension funds in the wake of Britain’s mini-budget. It can also respond to the implications of a sharp increase in mortgage rates.

BOE Governor Andrew Bailey is among several officials due to speak in the coming week, many of whom will appear at or around IMF meetings.

Likewise, several other officials from across Europe will speak in or near Washington. European Central Bank President Christine Lagarde and Thomas Jordan, her Swiss National Bank counterpart, are both due to deliver remarks.

In terms of European data, the UK will offer the most significant news. The jobs and growth reports could paint a richer picture of where the UK economy is doing amid rising rates and high inflation.

Eurozone industrial production on Wednesday is expected to have partially rebounded in August after a much larger decline the month before.

Inflation data will become more important in the rest of the region. In Hungary on Tuesday, the pace of price growth could reach almost 20%, while on Thursday, Sweden’s key measure is expected to exceed 9%. Israel and Egypt will also release inflation reports.

Further south, the measure of price growth in Ghana is expected to be more than triple the ceiling of the central bank’s 10% target for a third consecutive month.

Latin America

The week begins with the Brazilian central bank’s weekly Focus survey of market expectations. Analysts have cut their inflation forecast for 2022 for 14 consecutive weeks to 5.74%, while the GDP forecast for 2022 has been raised during this period to 2.7%.

This increasingly optimistic view of consumer prices in Brazil will likely be confirmed by data released on Tuesday: Analysts expect price gains to moderate for a third consecutive month in September, leaving the pace of year-on-year just above 7%, five percentage points below. April’s peak of 12.13%.

With inflation in Chile near a three-decade high, the central bank is all but certain to extend a record tightening cycle, likely pushing the policy rate up 50 basis points to an all-time high of 11.25%. The bank then meets in December.

On Thursday, Mexico’s Banxico releases the minutes of its September 29 meeting, where policymakers raised the benchmark rate to a record 9.25%. Many analysts see another 125-175 basis point tightening before officials determine their job is done.

Concluding the week, Argentina is expected to report year-on-year inflation on Friday close to Turkey’s 83.45%, the highest in the Group of 20. Analysts polled by Argentina’s central bank see an end-of-term rate of inflation. year of 100.3%.

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