Hari Kishan, Jonathan Cable

BENGALURU, Reuters – Global economic growth will slow down than expected three months ago according to Reuters polls. The polls were conducted by over 500 economists. They predicted that higher commodity prices, an escalation of the Russia-Ukraine conflict, and a slower global economy could lead to another downgrade.

The world’s economic output suffered already from the pressure of monetary tightening by central banks to curb rising inflation. However, Russia invaded Ukraine in February 24, sending commodities prices through record territory and prompting waves economic sanctions.

When 200 people were asked what the two biggest downside risks for the global economy in 2015, they chose persistently rising commodity prices as well as an escalation of the Russia-Ukraine conflict.

They were closely monitored by disruptions in supply chains – which were exacerbated during the Russian invasion. These effects were followed by second round inflation effects and over-eager central banksers.

GRAPHIC: Reuters poll – Global economic outlook https://fingfx.thomsonreuters.com/gfx/polling/myvmnybnepr/Reuters%20poll%20-%20Global%20economic%20outlook.png

“MASSIVE SUPPLY SHOCK”

Even with these future risks out, the median global growth forecasts gathered in this month’s Reuters polls of over 45 countries were cut to 3.5% for this year and 3.4% in 2023. They had been 4.3% and 3.6% respectively in a January poll.

This compares with an International Monetary Fund forecast of 3.6% growth for both years.

Nathan Sheets from Citi, the global chief economist for the global, said that central banks had been fighting an inflationary upsurge even before Russia’s confrontation.

But now, we have to add that spillovers from Ukraine caused a major supply shock. We are now able to raise our projections for inflation further and reduce our outlook for global economic growth.”

Experts have updated their inflation projections for almost all of the countries in question. This underlines the view that inflation will continue to rise and exceed most central bank targets longer than originally thought.

Due to the soaring inflation in many parts of the world only 13 of the top 25 central banks were polled expected to reduce inflation by 2023. That’s a decrease from the 18 polled in January.

The majority of those surveyed expected to proceed with tightening policy to combat inflation in spite of possible slowing or, as some indicators indicate, even triggering recessions.

It is difficult to wrestle the inflation dragon down to earth. Citi’s Sheets stated that this task will be difficult if you also have to avoid recession risk.

GRAPHIC: Reuters poll – 2022 Global GDP growth revisions https://fingfx.thomsonreuters.com/gfx/polling/xmvjoybodpr/Reuters%20Poll-%202022%20Global%20GDP%20growth%20revisions.png

INCREASING RATE

The Federal Reserve, America’s biggest economy, was likely to increase interest rates at least 150 basis points prior to year-end. Growth is expected to slow down to 3.3% and 2.2% this year, respectively, from last month’s 3.6% and 2.4%. [ECILT/US]

According to economists, the probability of an American recession within 12 months was 25% and that it would be 40% in two years.

The expected economic growth for the euro area was 2.9% in 2018 and 2.3% 2023. This is down from 3.8% in February and 2.5% in January. The poll medians showed that the European Central Bank raised its deposit rate by 30% this year with a 30% chance of recession in 12 months. [ECILT/EU]

Capital Economics group chief economist Neil Shearing said, “The important point is that regardless of a recession the performance world’s main economies will be less than many currently believe.”

“The development in the first quarter has only strengthened our conviction that 2022 would be a year when most of these economies fail,”

Britain’s cost-of-living crisis will likely have an adverse effect on the economy this year. But, it is predicted that the Bank of England will push ahead with increasing borrowing costs. [ECILT/GB]

The Bank of Japan was an anomaly, having not been able in decades to bring inflation back to its target. However, global price rises have prompted it to not tighten their policy. [ECILT/JP]

This interest rate situation has had an enormous impact on the yen, which fell to a 20 year low last week against the dollar.

The growth estimates for many Asian countries polled were lower than expected as China’s economic woes have lowered the outlook for all those in its orbit (from South Korea to Thailand).

This was not only likely to impact the economy of the region, it is also expected that the result will have an economic ripple effect on the rest of the world.

(See also the Reuters Global Long-Term Economic Outlook Polls Package for other stories)