Inflation to dog world economy next year, postponing rate cut calls -
Reuters poll
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[October 27, 2023] By
Hari Kishan
BENGALURU (Reuters) - High inflation will dog the world economy next
year, with three-quarters of over 200 economists polled by Reuters
saying the main risk is that it turns out higher than they forecast,
suggesting interest rates will also remain higher for longer.
Several central banks are still expected to begin cutting interest rates
by the middle of 2024, but a growing number of economists surveyed are
adjusting their views, pushing the more likely date into the second half
of next year.
This is a significant change from expectations at the start of this
year. Then, some investment banks were predicting the U.S. Federal
Reserve, which sets the tone for many others, would be cutting rates
right around now.
Despite broad success in bringing inflation down from its highs - the
easier bit - prices are still rising faster than most central banks
would prefer and hitting their inflation targets is likely to be tough.
The latest Reuters poll of over 500 economists taken between Oct. 6 and
Oct. 25 produced 2024 growth downgrades and inflation upgrades for a
majority of the 48 economies around the world surveyed.
A 75% majority who answered a separate question, 171 of 228, said the
risk to these broadly-upgraded inflation forecasts was skewed higher,
with only 57 saying lower.
The results follow news on Thursday the U.S. economy unexpectedly grew
nearly 5%, annualised, in the third quarter, underscoring how the
strength of the world's largest economy is setting it apart from most of
its peers.
The survey results also follow a warning from European Central Bank
President Christine Lagarde, who said after the ECB snapped a 10-meeting
tightening streak that "even having a discussion on a cut is totally,
totally premature".
While many central banks, including the Fed and the ECB, have presented
a "higher for longer" narrative on rates for the better part of this
year, many economists and financial market traders have been reluctant
to accept that view.
"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.
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A woman shops for groceries at El Progreso Market in the Mount
Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022.
REUTERS/Sarah Silbiger/File Photo/File Photo
"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 economists still say the Fed will cut by mid-year, the
latest poll shows just 55% backing that scenario compared with over
70% last month.
The Reserve Bank of New Zealand, which often leads the interest rate
cycle, was also forecast to wait until July-September 2024 before
cutting.
The majority backing no cuts until the second half of 2024 has also
grown stronger for the Reserve Bank of Australia, Bank Indonesia and
the Reserve Bank of India.
Even the Bank of Japan, the outlier sticking to ultra-loose policy
through this entire round of inflation, is now expected to abandon
negative interest rates next year.
Crucially, most economists agree the first easing steps will not be
the beginning of a rapid series of cuts.
Asked what would prompt the first cut by the central bank they
cover, over a two-thirds majority, 149 of 219, said it would be
simply to make real interest rates less restrictive as inflation
falls.
The remaining 70 said the first move would mark a shift towards
stimulating the economy, suggesting only a minority expect a hard
enough hit to demand and inflation hard to warrant monetary
response.
Global economic growth was forecast to slow to 2.6% next year from
an expected 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.
(Reporting by Hari Kishan; Polling, analysis and reporting by the
Reuters Polls team in Bengaluru and bureaus in Buenos Aires, Cairo,
Istanbul, Johannesburg, London, Shanghai, and Tokyo; Editing by Ross
Finley and Tomasz Janowski)
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