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Global finance chiefs are meeting in Washington in the coming days warning of a potential $4 trillion loss in global economic output.
That’s the Germany-sized hole in the growth outlook through 2026 that International Monetary Fund chief Kristalina Georgieva last week identified as a looming risk.
It will play host to central bankers, finance ministers and others grappling with the global economic consequences of rampant inflation, aggressive monetary policy tightening, rising debt and land war largest in Europe since the Second World War.
That the annual meetings of the IMF and the World Bank will be fully in-person for the first time since the outbreak of Covid-19 in early 2020, showing progress in managing the pandemic, will be of limited comfort considering other headaches.
The current confluence of economic, climate and security crises makes it unlike anything global policymakers have seen since 1945. However, certain elements, such as the havoc in emerging markets caused by rising interest rates ‘interest of the Federal Reserve in the early 1980s, are adjusted to the present. situation.
“The big question for the meetings is, ‘What are we going to do in terms of an institutional response to this, beyond the normal,'” Masood Ahmed, president of the Center for Global Development in Washington, said last week.
Here’s a look at some of the issues officials will be dealing with:
World Economic Outlook: The IMF releases this Tuesday. Georgieva said last week that the global growth forecast of 2.9% for 2023 will be cut.
Ukraine: The country that Vladimir Putin’s forces invaded in February will remain in the spotlight, from the impact of a depleted grain crop to Russia’s gas pressure 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 board last month approved a new “food shock window” of emergency financing to help nations hurt by rising agricultural costs.
UK: The country remains vulnerable after market turmoil forced a partial reversal of a package of tax cuts from the government of new Prime Minister Liz Truss that was criticized by the IMF.
The Fed: US tightening is hurting other economies. IMF calculations show that 60% of low-income countries and a quarter of emerging markets are in debt distress or nearly so.
Climate: The crisis is only getting worse, as recently demonstrated by disasters from floods in Pakistan to a hurricane that hit Puerto Rico and Florida.
Elsewhere this week, a faster reading on US core inflation, news on UK financial stability, a South Korean rate hike and the Nobel Prize in Economics will be some of the highlights .
What Bloomberg Economics Says:
“When foreign finance ministers and central bankers gather in Washington for World Bank and IMF meetings next week, many may argue that the rest of the world cannot afford 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 you’ll find our summary of what’s happening elsewhere in the global economy.
In the US, the consumer price index is the highlight next week. Thursday’s Labor Department report will give Fed officials a snapshot of how inflationary pressures are evolving after a series of huge interest rate hikes.
Economists estimate that the CPI rose 8.1% in September from a year ago, marking a slowdown from the previous month’s 8.3% annual increase as energy prices settle down However, excluding fuel and food, the so-called core CPI is still accelerating: it is expected to show an annual gain of 6.5%, up from 6.3% in August.
An increase of that magnitude in the core measure would match the biggest advance since 1982, illustrating stubborn inflation and keeping the pump primed for a fourth straight 75 basis point rate hike at the November meeting of the Fed.
Investors will hear from several US central bankers next week, including Vice Chairman Lael Brainard and Fed Regional Chairs Loretta Mester, Charles Evans and James Bullard. The minutes of the Fed’s September meeting will be released on Wednesday.
Other data includes data on prices paid to US producers. So-called wholesale inflation has shown signs of moderating as commodity prices weaken amid concerns of a global economic slowdown.
The week will be limited by retail sales data. Economists forecast a modest monthly advance in September, helped by a pick-up in motor vehicle purchases. Excluding cars, the value of retail sales is seen to decline for a second month. Because the numbers are not adjusted for inflation, the data suggest demand for goods slowed in the third quarter.
Bank of Korea Governor Rhee Chang-yong may resort to a small U-turn in the scale of rate hikes. While it returned to its usual quarter-point hike in August, many economists see it opting for a move twice that size on Wednesday as the Fed’s rapid tightening increases pressure on the winner
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 can shed light on the Reserve Bank of Australia’s latest policy thinking after its pivot to smaller hikes.
Bank of Japan Governor Haruhiko Kuroda and Finance Minister Shunichi Suzuki will be in Washington for IMF meetings, with yen movements still under scrutiny.
Meanwhile, China is being hit by a spike in Covid-19 cases after the week-long 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 with the announcement of the Nobel Prize in Economics on Monday. The award was established by the Riksbank of Sweden in 1968, adding a sixth category to the existing physics, chemistry, medicine, peace and literature awards. Three US academics won in 2021 for working with experiments that were based on real-life situations to revolutionize empirical research.
The Bank of England’s Monetary Policy Committee will take center stage on Wednesday, a sure sign that the UK is facing major problems.
The panel, responsible for emergency intervention to prevent a bond market spiral last month, will publish minutes of its latest meeting. That may offer insight into whether officials see a risk of further turmoil that was already affecting pension funds after Britain’s mini-budget. It can also address the implications of a sharp rise in mortgage rates.
BOE Governor Andrew Bailey is among several officials speaking next week, many of whom will appear at or around IMF meetings.
Likewise, several other officials from around Europe will speak in or near Washington. The president of the European Central Bank, Christine Lagarde, and Thomas Jordan, her counterpart at the Swiss National Bank, are scheduled to make statements.
In terms of European data, the UK will provide the most significant news. Reports on jobs and growth can paint a richer picture of how Britain’s economy is faring amid rising rates and high inflation.
Eurozone industrial production on Wednesday is likely to have partially recovered in August after a much larger drop the previous month.
Inflation data will take center stage in the rest of the region. In Hungary on Tuesday, the rate of price growth may reach 20%, while on Thursday, Sweden’s key measure is expected to exceed 9%. Israel and Egypt will also release inflation reports.
Further south, Ghana’s measure of price growth is expected to be more than triple the ceiling of the central bank’s 10% target for the third consecutive month.
The week begins with the weekly Focus survey on market expectations, which the Brazilian central bank follows closely. Analysts have cut their inflation forecasts for 2022 for 14 weeks in a row to 5.74%, while the 2022 GDP forecast has increased over that time to 2.7%.
This increasingly upbeat view of Brazil’s consumer prices will be confirmed by data released on Tuesday: Analysts expect price gains to moderate for a third consecutive month in September, leaving the year-on-year pace just above 7%, five percentage points below. Maximum of 12.13% in April.
With inflation in Chile near a three-decade high, the central bank is almost certain to extend a record tightening cycle, likely to raise interest rates by 50 basis points to an all-time high of 11 .25% The bench will meet in December.
On Thursday, Banxico de México publishes the minutes of its September 29 meeting, where policymakers raised the key rate to a record 9.25%. Many analysts see another 125 to 175 basis points of tightening before officials determine their job is done.
To end the week, Argentina is expected to report September year-on-year inflation on Friday not far from the 83.45% recorded by Turkey, the highest in the Group of 20. Analysts polled by Argentina’s central bank see a rate year-end of 100.3%.
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