High inflation will plague the global economy next year, according to three-quarters of over 200 economists polled by Reuters, with the major danger being that it is bigger than expected, implying that interest rates will remain higher for longer.
Several central banks are still projected to start decreasing interest rates around the middle of 2024, but a rising number of experts polled are shifting their expectations, putting the more likely date into the second half of next year.
This is a substantial shift from the beginning of the year. Then, some investment institutions predicted that the United States Federal Reserve, which sets the tone for many countries, will drop rates soon.
Despite widespread success in lowering inflation from its highs – the easier part – prices continue to rise faster than most central banks would want, and meeting their inflation targets is going to be difficult.
The most recent Reuters poll of over 500 economists, conducted between October 6 and October 25, yielded GDP downgrades and inflation upgrades for the bulk of the 48 economies polled.
A 75% majority, 171 of 228 respondents, believed the danger to these generally revised inflation estimates was skewed higher, with only 57 indicating lower.
The results come after the US economy surprisingly gained about 5% year on year in the third quarter, highlighting how the world's largest economy's strength distinguishes it from most of its peers.
The survey findings come on the heels of a warning from European Central Bank President Christine Lagarde, who stated after the ECB broke a 10-meeting tightening streak that "even discussing a cut is totally, totally premature."
For the larger part of this year, many central banks, including the Fed and the ECB, have presented a "higher for longer" narrative on rates, but many economists and financial market participants have been hesitant to adopt that position.
"I think all of us have to keep an open mind that maybe policy isn't restrictive enough," said Douglas Porter, chief economist at BMO.
"Our forecast is that the Fed has done enough and they don't have to raise rates further, but I haven't closed off the possibility we could be wrong and the Fed does ultimately have to do more."
While most analysts still believe the Fed will lower rates by mid-year, the new survey shows only 55% support for that scenario, down from nearly 70% last month.
The Reserve Bank of New Zealand, which frequently sets interest rates, was likewise expected to wait until July-September 2024 before reducing rates.
The majority now supports no reduction until the second half of 2024 for the Reserve Bank of Australia, Bank Indonesia, and the Reserve Bank of India.
Even the Bank of Japan, which has maintained ultra-easy policy throughout this inflationary cycle, is likely to drop negative interest rates next year.
Most analysts think that the initial easing measures will not be the start of a quick succession of decreases.
When asked what would drive the first cut by the central bank they cover, 149 of 219 stated it would simply be to make real interest rates less restrictive when inflation declines.
The remaining 70 thought the first measure would be a shift towards supporting the economy, implying that only a minority expects a significant enough impact to demand and inflation to necessitate monetary action.
Global economic growth is anticipated to fall to 2.6% next year, down from 2.9% this year.
"Central banks have had the highest rates in order to fight inflation ... it's certainly restraining activity, and it's going to be a while before we get global growth above what has been its historical average," said Nathan Sheets, global chief economist at Citi.
(Source:www.reuters.com)
Several central banks are still projected to start decreasing interest rates around the middle of 2024, but a rising number of experts polled are shifting their expectations, putting the more likely date into the second half of next year.
This is a substantial shift from the beginning of the year. Then, some investment institutions predicted that the United States Federal Reserve, which sets the tone for many countries, will drop rates soon.
Despite widespread success in lowering inflation from its highs – the easier part – prices continue to rise faster than most central banks would want, and meeting their inflation targets is going to be difficult.
The most recent Reuters poll of over 500 economists, conducted between October 6 and October 25, yielded GDP downgrades and inflation upgrades for the bulk of the 48 economies polled.
A 75% majority, 171 of 228 respondents, believed the danger to these generally revised inflation estimates was skewed higher, with only 57 indicating lower.
The results come after the US economy surprisingly gained about 5% year on year in the third quarter, highlighting how the world's largest economy's strength distinguishes it from most of its peers.
The survey findings come on the heels of a warning from European Central Bank President Christine Lagarde, who stated after the ECB broke a 10-meeting tightening streak that "even discussing a cut is totally, totally premature."
For the larger part of this year, many central banks, including the Fed and the ECB, have presented a "higher for longer" narrative on rates, but many economists and financial market participants have been hesitant to adopt that position.
"I think all of us have to keep an open mind that maybe policy isn't restrictive enough," said Douglas Porter, chief economist at BMO.
"Our forecast is that the Fed has done enough and they don't have to raise rates further, but I haven't closed off the possibility we could be wrong and the Fed does ultimately have to do more."
While most analysts still believe the Fed will lower rates by mid-year, the new survey shows only 55% support for that scenario, down from nearly 70% last month.
The Reserve Bank of New Zealand, which frequently sets interest rates, was likewise expected to wait until July-September 2024 before reducing rates.
The majority now supports no reduction until the second half of 2024 for the Reserve Bank of Australia, Bank Indonesia, and the Reserve Bank of India.
Even the Bank of Japan, which has maintained ultra-easy policy throughout this inflationary cycle, is likely to drop negative interest rates next year.
Most analysts think that the initial easing measures will not be the start of a quick succession of decreases.
When asked what would drive the first cut by the central bank they cover, 149 of 219 stated it would simply be to make real interest rates less restrictive when inflation declines.
The remaining 70 thought the first measure would be a shift towards supporting the economy, implying that only a minority expects a significant enough impact to demand and inflation to necessitate monetary action.
Global economic growth is anticipated to fall to 2.6% next year, down from 2.9% this year.
"Central banks have had the highest rates in order to fight inflation ... it's certainly restraining activity, and it's going to be a while before we get global growth above what has been its historical average," said Nathan Sheets, global chief economist at Citi.
(Source:www.reuters.com)
