POLL Global 2023 economic view downgraded, at odds with market optimism

BENGALURU, Jan 26 (Reuters) – Global economic growth is expected to barely clear 2 percent this year, according to a Reuters poll of economists who said the bigger risk was to see another slowdown, against widespread optimism in markets since that the beginning of the year.

Falling energy prices, slowing inflation in most economies from decade highs, an unexpectedly sluggish euro zone economy and China’s economic opening have led traders to expect a milder downturn.

That pushed MSCI’s index of world shares (.MIWD00000PUS) up more than 20% from October’s lows, hitting a five-month closing high on Tuesday, despite greater risk that central banks will keep interest rates on hold longer than they would cut. her

But economists were far less sanguine overall, with growth forecasts for this year and beyond down from 2.3% and 3.0%, respectively, to 2.1% and 2.8% in an October 2022 survey. Their tighter stance flies in the face of some notable updates by banks in recent weeks.

The 2023 growth forecast is well behind the International Monetary Fund’s forecast of 2.7% published in October and expected to be updated next week. The latest Reuters poll of more than 500 economists covering 45 economies was conducted Jan. 5-25.

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More than two-thirds of respondents, 130 out of 195, said the biggest risk to the global growth outlook is that it will be slower than they currently expect.

A lot will depend on whether the world’s major central banks can claim about a year of historically intense interest rate hikes that have yet to end. The full impact of a rate hike could take a year or more to be reflected in economies.

Based on the good news in the first weeks of this year, market strategists at Rabobank said: “The market is looking for a dream scenario of inflation peaking, then falling sharply, but not too much downwards.”

“However … the range of scenarios ahead is really wide, and yet the market seems to have settled for a happy medium that seems least likely to happen.”

Reuters poll chart on global growth outlook

Adjusted gross domestic product growth forecasts for 2023 were lowered for more than 80% of the economies surveyed from the October survey.

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Inflation forecasts for this year in nearly 80% of surveyed economies, 35 out of 45, were updated from the October survey, suggesting that global central banks were biased to maintain a tighter monetary policy for a long time.

At the same time, unemployment rates were not expected to rise above low levels.

This suggests that central banks have no room to consider cutting rates anytime soon.

Almost all major central banks were expected to keep interest rates steady until the end of this year, a result against rate futures, which are expected to ease in the fourth quarter.

The European Central Bank, the US Federal Reserve and the Bank of England were expected to raise rates at their next two meetings and then hold them steady.

While the ECB was expected to give a bigger 50-basis-point hike, the Fed was expected to go for a 25-basis-point rate hike.

The BoE was expected to raise its Bank Rate by 50 basis points to 4.00% on February 2 and then raise it by a quarter-percentage point in March before pausing.

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“We see good reasons to believe that the global economy still has a difficult year ahead,” economists at Citigroup said.

“High inflation and tight monetary policy seem likely to dampen the outlook, and we would not be surprised to see renewed tightening in global financial conditions in the coming months.”

Reuters survey chart of key global central bank interest rates

When asked to list the biggest threat to global economic growth in 2023, 85% of economists, 171 out of 196, were roughly between tighter monetary policy (90 ) and persistently higher inflation (81).

Fifteen focused on the Russia-Ukraine war, eight pointed to a correction in asset prices, one cited a resurgence of COVID-19, and one cited weaker-than-expected labor markets.

(For more stories from the Reuters global economic survey:)

Report by Hari Kishan and Sarupya Ganguly; Polling, analysis and reporting by the Reuters polling team in Bengaluru and bureaus in Buenos Aires, Cairo, Istanbul, Johannesburg, London, Shanghai and Tokyo; Editing by Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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