HARI KISHAN
April 28, 2023
Persistently high inflation remains the biggest economic concern this year even as most central banks are at or near the endgame for rate rises, according to Reuters polls of economists who also upgraded their 2023 growth forecasts from three months ago.
With the global economy performing better than expected so far this year, most major economies were forecast to escape an outright recession or get away with a shallow one, suggesting that policy-makers have their work cut out in taming inflation.
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Median forecasts for a majority of the 45 economies covered were upgraded from the January poll. The survey pegged global growth at 2.5 per cent for the year, up from 2.1 per cent expected three months ago but below the International Monetary Fund’s 2.8 per cent view.
Economists have also upgraded their inflation outlook. Median forecasts were raised for over two-thirds of 45 economies polled and economists said they were bracing for inflation to top their predictions, not undershoot them
More than a three-quarters majority of economists, 207 of 268, who answered an additional question said the bigger risk to their 2023 inflation view was for it to be higher than they expected. Just 61 said it could be lower than forecast.
“The big macro question of the day is how much economic weakness will be needed to bring inflation under control. Our point is that there has been only limited progress in bringing global inflation down with almost no real pain,” said Ethan Harris, head of global economics research at Bank of America Securities.
“While investors are trying to look towards a more normal period ahead, first the rebalancing needs to actually happen,” he added.
The poll findings, which do not suggest imminent easing by the Federal Reserve, were at odds with market expectations for U.S. policy easing to start by end-year.
The Fed was forecast to deliver a final 25-basis-point rate increase in May and then hold steady for the rest of 2023, the latest Reuters poll showed.
The European Central Bank was expected to hike its deposit rate by a similar amount next week and then again in June, and the Bank of England is also forecast to deliver a rate rise in May.
When asked what was the biggest risk to the global economy in the near-term, a slim majority of economists, 94 of 176, picked persistently high inflation. The remaining 82 chose financial turmoil.
Financial markets spent much of March in the grips of worry about the health of regional banks in the U.S. and Europe, concerns which have since subsided.
“As crisis fears ebb, inflation worries are again returning. Inflation risks tilt to the upside as the long-expected slowdown in core inflation has largely failed to materialize,” said James Rossiter, head of global macro strategy at TD Securities.
Tight labour markets in the developed world, where unemployment rates are near their lowest in decades, was also likely to keep growth and inflation elevated.
The U.S. unemployment rate was expected to rise from 3.5 per cent currently to 4.3 per cent by the end of 2023 and average 4.5 per cent in 2024, still historically low compared to previous recessions.
Growth was expected to average 1.1 per cent and 0.8 per cent this year and in 2024, respectively. Economic growth in No. 2 economy China was expected to pick up to 5.4 per cent this year from 3.0 per cent last year.
