Central bank decision and impacts on supply, among great risks to the world economy

Too rapid a reduction in emergency stimulus by central banks and more supply chain disruptions are some of the main risks to the global economy next year as the COVID-19 pandemic persists, economists said in a Reuters global survey. .

As global growth is likely to have peaked, forecasters have generally aligned themselves with the view shared by many of the major central banks that the recent acceleration in inflation will be transitory, although their forecasts are being raised.

However, while supply chain bottlenecks pose a serious threat to the recovery and there are few signs of sudden relief so far, some exchanges are trading near all-time highs, even as interest rates are down. now on the upside.

The concern is that after a prolonged period of historically low rates and emergency policies, central bankers may grow impatient and feel compelled to respond to the current peak in inflation, where people are feeling the pressure.

Reuters polls, which included more than 500 economists from around the world, found that 13 of the 25 central banks would raise rates at least once before the end of next year. Some have already done so, such as those in New Zealand, Russia and Brazil.

Yet about a quarter of the 171 economists who responded to an additional question said too fast a reduction in stimulus by banks would be one of the biggest downside risks to the world economy.

A similar number of respondents said that further supply chain disruptions or outbreaks in the COVID-19 pandemic – which will enter its third year in 2022 as a greatly diminished but not yet expired threat – are the main risks.

“Many major central banks are now cautiously moving towards the exit in relation to their ultra-lax monetary policies. They are not doing it because of the strength of the economic recovery, ”said Jan Lambregts of Rabobank.

“Cost inflation appears to have set the wheels in motion for central banks, which say they now have a broader socio-political focus. Getting this wrong could be very costly in terms of maintaining your political independence”He added.

In fact, global growth is expected to slow to 4.5% next year from a spectacular 5.9% this year, virtually unchanged from July. That slowdown is somewhat higher than the International Monetary Fund’s latest projection of 4.9%.

Growth is forecast to slow around that pace in 2023, to 3.5%, according to the survey.

“The initial burst of activity linked to the reopening is over, and the growth momentum is rapidly slowing down. Weakening fiscal support is playing a role, but so is the direct impact of restrictions and disruptions related to COVID-19″ Said Janet Henry of HSBC.

“Despite uncertainties, many central banks want to end the era of ultra-lax monetary policy”He added.

Most central banks are looking at the exit. But there are some big notable exceptions.

The Bank of England and the Bank of Canada are expected to raise rates next year and the European Central Bank to do the same in 2024, but the Bank of Japan is now forecast to do nothing until the end of the forecast horizon. .

Modest increase in inflation forecast

Economists raised the inflation outlook for 18 of the 21 developed economies, by 0.1 to 0.7 percentage points, and for 15 of the 27 emerging economies, by 0.1 to 1.8 percentage points.

However, nearly two-thirds of economists who responded to an additional question – 117 out of 182 – said the recent acceleration in global inflation is unlikely to persist for the next two to three years.

The remaining 65 respondents see persistently higher inflation likely, and among them more than 60% indicated there was a high risk of it affecting global growth.

“Inflation is likely to decline in all major economies next year, but there is evidence that underlying inflationary pressures are increasing”Said Neil Shearing of Capital Economics.

“I don’t think it’s the 70s-style inflation episode, but when you look at all the labor market and product market indicators, they all point to price hikes and a higher core inflation rate.“, he pointed.