The global economy will grow slower than forecast three months ago, according to a Reuters survey of more than 500 economists, who said higher commodity prices and an escalation in the Russo-Ukrainian war could push for another decline.
Already under pressure from monetary tightening as central banks try to stem rising inflation, world economic output received a major blow when Russia invaded Ukraine on February 24, causing commodity prices to cross the roof and trigger a wave of economic sanctions.
When asked to name the two biggest downside risks to the global economy this year, the main choice of about 200 respondents was the ever-higher commodity prices and the further escalation of the Russo-Ukrainian war.
It was closely followed by supply chain disruptions – exacerbated by Russian aggression – followed by the effects of second -round inflation and over -enthusiastic central banks.
“Mass Supply Shock”
Even without such future risks, the median forecast for global growth compiled in this month’s Reuters polls across more than 45 economies was reduced to 3.5% this year and 3.4% for 2023 from 4.3% and 3.6% in the January survey.
That compares with the International Monetary Fund’s forecast of 3.6% growth in both years.
“Even before the Russia-Ukraine confrontation peaked, the central bank was fighting a severe rise in inflation that reflected the effects of the epidemic, straining the global supply chain and tightening labor markets,” said Nathan Sheets, head of global economics at Citi.
“But now, in addition, the overflow from Ukraine has brought massive supply shocks, which have prompted us to further raise our projections for inflation and mark our global growth prospects.”
The experts upgraded their inflation forecasts for almost all concerned economies, underlining the view that inflation will remain high and exceed the targets of most central banks for longer than previously thought.
With soaring inflation gripping much of the world, only 13 of the 25 major central banks surveyed are expected to lower inflation to target by the end of 2023, down from 18 in the January survey.
Most are expected to pursue plans to tighten policy to tackle inflation despite the risk of curbing growth or even, according to indicators in some markets, triggering a recession.
“Just struggling with the dragon of inflation to earth seems like a difficult task. Doing it while avoiding the risk of a recession will require smart policy making and, perhaps, good luck as well,” Citi’s Sheets added.
Rate of Increase
In the US, the world’s largest economy, the Federal Reserve is expected to raise interest rates by at least 150 basis points before the end of the year, with growth expected to slow to 3.3% this year and 2.2% further, down from 3.6% and 2.4% forecast last month.
Economists give a 25% probability of a US recession in the next 12 months and 40% in two years.
Economic growth in the eurozone is expected to be 2.9% this year and 2.3% in 2023, down from 3.8% and 2.5% forecast a month ago. The median of the survey also shows the European Central Bank raising its deposit rates this year, with a 30% probability of recession in 12 months.
“The more important thing is that, with or without a recession, the performance of the world’s major economies is likely to be weaker than expected at the moment,” said Neil Shearing, group chief economist at Capital Economics.
“Developments in the first quarter only strengthen our belief that 2022 will be a year in which most economies struggle.”
In Britain, the cost of living crisis is likely to have a severe impact on economic growth this year but the Bank of England is forecast to continue to move forward by raising the same borrowing costs.
As an aside, the Bank of Japan, which has failed to raise inflation close to its target for decades, is not expected to tighten policy in the near term, despite a wave of global price increases.
The interest rate scenario has had a dramatic impact on the yen which slumped to a 20 -year low against the dollar last week.
Growth estimates were lowered for most of the Asian economies surveyed as China’s economic downturn has darkened the prospects for countries in its orbit, from South Korea to Thailand.
That is likely to have an economic impact not only for the region but also for the world at large.
(Except for the headline, this story has not been edited by AGRASMARTCITY staff and is published from a syndicated feed.)