Title: Global growth headed down as inflation surge to endure

Jul 27, 2022 05:25AM ET

By: AnalysisWatch

The global economy is mired in a serious slowdown, with some key economies at high risk of recession and only sparse meaningful cooling in inflation likely over the coming year, according to Reuters polls of hundreds of economists worldwide.

Most central banks are only part-way through a still-urgent cycle of interest rate rises as many policymakers make up for a collective error in judgment last year thinking supply chain-related inflation pressures would not last.

That carries with it another risk - central banks moving too quickly without taking time to assess damage from the fastest interest rate rises in more than a generation following over a decade of near-zero rates.

Despite their aggressive response - in some cases, the most in several decades - inflation has yet to ease in most of the near-50 economies covered in the June 27-July 25 Reuters surveys of more than 500 forecasters around the world.

The U.S. Federal Reserve, due to hike rates by another 75 basis points later on Wednesday, is a case in point. U.S. inflation, now at a four-decade high of 9.1%, is not expected to cool to the Fed's 2% target until at least 2024.

There is already a median 40% chance of recession happening in the world's largest economy over the coming year, up sharply from three months ago, and those chances have risen for the euro zone and Britain too.

Global growth is forecast to slow to 3.0% this year followed by 2.8% next, both downgraded from 3.5% and 3.4% in the last quarterly poll in April. That compares with the International Monetary Fund's latest forecasts of 3.2% and 2.9%.

Similarly, inflation forecasts for nearly 90% of the 48 economies were upgraded for next year and over 45% for 2024. That means no quick respite from a cost of living crisis pinching households.

Indeed, the vast majority of respondents said it would be at least next year before the crisis eases significantly (86%) with more than a third (39%) saying over a year.

Emerging economy central banks covered by the polls are further through their expected hiking cycle, about three-quarters of the way, on average. This is skewed higher in part by the early and aggressive rate campaign by Brazil's central bank, one of the first out of the gates.

Developed economy central banks, by contrast, are only on average about half-way through, held back in part by the European Central Bank, which only just began raising rates.

That means more rate rises still lie ahead.