(Bloomberg) — The world’s financial leaders will gather in Washington in the coming days with the warning of a possible $4 trillion loss in the global economy.
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That’s the gap the size of Germany in the growth outlook to 2026 that the head of the International Monetary Fund, Kristalina Georgieva, identified as an imminent risk last week.
She will play host as central bankers, finance ministers and others face the effects of rampant inflation, aggressive monetary policy tightening, rising debt and Europe’s biggest ground war since World War II on the global economy.
That the annual meetings of the IMF and World Bank will be fully personal for the first time since the Covid-19 outbreak in early 2020, showing progress in bringing the pandemic under control will be of limited comfort given other headaches .
The current confluence of economic, climate and security crises makes it unlike anything policymakers in the world have seen since 1945. Yet certain elements, such as the devastation to emerging markets wrought by the Federal Reserve’s rate hikes in the early 1980s, echo the current situation.
“The big question for the meetings is, ‘What are we going to do in terms of the institutional response to this, beyond the usual course of business,’” Masood Ahmed, president of the Washington-based Center for Global Development, said last week.
Here’s a quick look at some of the issues officials will struggle with:
World Economic Outlook: the IMF announced on Tuesday. Georgieva said last week that the global growth forecast of 2.9% for 2023 will be cut.
Ukraine: The country invaded by Vladimir Putin’s forces in February will remain on edge, 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 to Ukraine, the first loan to the nation since early March.
Food prices: The IMF’s board of directors approved a new “food shock window” for emergency funding last month to help countries suffering from rising agricultural costs.
The UK: The country remains vulnerable after market turmoil forced a partial reversal of a tax cut package from Prime Minister Liz Truss’s new government, which had been pawned by the IMF.
The Fed: US tightening hurts other economies. IMF calculations show that 60% of low-income countries and a quarter of emerging markets are in or near debt distress.
Climate: The crisis is only getting worse, as recently witnessed by disasters from flooding in Pakistan to a hurricane that ravaged Puerto Rico and Florida.
Elsewhere this week, an accelerated reading of core inflation in the US, news of financial stability in the UK, a South Korean rate hike and the Nobel Prize in economics will be among the highlights.
What Bloomberg Economics Says:
“When foreign ministers and central bankers gather in Washington next week for World Bank and IMF meetings, many will argue that the rest of the world cannot afford further increases from the Fed.”
— Anna Wong, Andrew Husby, and Eliza Winger. For full analysis, click here
Click here for what happened last week and below is our summary of what is going on elsewhere in the global economy.
In the US, the consumer price index will peak next week. Thursday’s Labor Department report will provide Fed officials with a snapshot of how inflationary pressures are evolving after a series of massive rate hikes.
Economists estimate that September’s CPI rose 8.1% from a year ago, slowing down from the previous month’s 8.3% annual increase as energy prices slipped. Excluding fuel and food, however, the so-called core CPI is still rising – it is expected to show an annual increase of 6.5%, up from 6.3% in August.
An increase of that magnitude in the core measure would represent the biggest advance since 1982, illustrating persistent inflation and preparing the pump for a fourth consecutive 75 basis point rate hike at the Fed’s November meeting.
Investors will hear from a number of US central bankers in the coming week, including Vice Chairman Lael Brainard and regional Fed presidents Loretta Mester, Charles Evans and James Bullard. The minutes of the Fed’s September meeting will be released on Wednesday.
Other data include figures on prices paid to US producers. So-called wholesale inflation is showing signs of moderation as commodity prices weaken on concerns about a global economic slowdown.
The week ends with retail sales data. Economists are forecasting a modest monthly advance in September, helped by a rebound in motor vehicle purchases. Excluding cars, the value of retail sales falls for a second month. Because the numbers are not adjusted for inflation, the data suggests that commodity demand slowed in the third quarter.
Bank of Korea Governor Rhee Chang-yong may resort to a slight turnaround on the scale of rate hikes. While he returned to the usual quarter-point gains in August, many economists are seeing him opt for a move twice as large on Wednesday as the Fed’s rapid tightening puts pressure on the winning side.
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 stable for a third.
Assistant Governor Luci Ellis may shed light on the Reserve Bank of Australia’s latest thinking on policy after its pivot to smaller hikes.
Bank of Japan Governor Haruhiko Kuroda and Treasury Secretary Shunichi Suzuki will be in Washington for IMF meetings, with the yen’s movements still being closely watched.
Europe, Middle East, Africa
The week kicks off with the announcement of the Nobel Prize in Economics on Monday. The prize was established in 1968 by the Swedish Riksbank and added a sixth category to the existing prizes in physics, chemistry, medicine, peace and literature. Three US-based academics won in 2021 for using experiments based on real-life situations to revolutionize empirical research.
The Bank of England’s Financial Policy Committee will take center stage on Wednesday, a clear sign that the UK faces significant challenges.
The panel, which is responsible for emergency intervention last month to prevent a spiral in bond markets, will release a record of its latest meeting. That could provide insight into whether officials see a risk of renewed turmoil that has already plagued pension funds after Britain’s mini-budget. It can also address the consequences of a sharp rise in mortgage rates.
BOE Governor Andrew Bailey is one of the officials to speak in the coming week, many of whom will appear at or around IMF meetings.
Likewise, several other officials from across Europe will be speaking in Washington or nearby. European Central Bank President Christine Lagarde and Thomas Jordan, her Swiss National Bank counterpart, will both make comments.
In terms of European data, the UK will provide the most important news. Jobs and growth reports can paint a richer picture of how the UK economy is doing amid rising rates and high inflation.
Euro-zone industrial production on Wednesday is likely to have partially recovered in August, after a much larger decline in the previous month.
Inflation data will feature prominently in the rest of the region. In Hungary, the pace of price growth could reach close to 20% on Tuesday, while Sweden’s key measure is expected to exceed 9% on Thursday. Israel and Egypt will also publish inflation reports.
Further south, Ghana’s measure of price growth is expected to hit more than three times the ceiling of the central bank’s 10% target for the third straight month.
The week kicks off with the Brazilian Central Bank’s meticulous weekly Focus survey of market expectations. Analysts have lowered their 2022 inflation forecasts to 5.74% for 14 consecutive weeks, while the 2022 GDP forecast has increased to 2.7% during that time.
That increasingly optimistic view of Brazilian consumer prices is likely to be confirmed by data released Tuesday: Analysts expect price increases to moderate for the third straight month in September, keeping the year-over-year pace just above 7% – fully five percentage points lower The peak of 12.13% in April.
With inflation in Chile running high for nearly three decades, it is almost certain that the central bank will extend a record tightening cycle, likely pushing key interest rates up 50 basis points to a record high of 11.25%. The next bank will meet in December.
On Thursday, Banxico in Mexico will release the minutes of its September 29 meeting, where policymakers raised key rates to a record 9.25%. Many analysts see another tightening of 125 to 175 basis points before officials determine their work is done.
To close out the week, Argentina is expected to report year-over-year inflation in September on Friday, not far from Turkey’s 83.45%, the highest in the Group of 20. Analysts polled by the Bank of Argentina see a year-end percentage of 100.3%.
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