IMF: Global economic analysis: IMF warns of deteriorating outlook

(Bloomberg) – The International Monetary Fund has lowered its forecast for global growth and pointed out that economies are becoming increasingly vulnerable to monetary policy missteps that are adding to the headwinds of war in Ukraine and the slow from China.

A widely followed gauge of underlying consumer prices in the United States accelerated to a 40-year high. Persistent inflation increases the chances that the Federal Reserve will adhere to a sound monetary policy strategy, fueling a surge in the dollar that has economic and financial repercussions for the rest of the world.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

World

Bloomberg

The IMF has warned of a deteriorating outlook for the global economy, cutting its forecast for global growth next year to 2.7% from 2.9% in July, adding that it predicts a probability of 25 % that growth slows to less than 2%. The risk of political miscalculation has risen sharply as growth remains fragile and markets show signs of strain, the IMF said in its World Economic Outlook. About a third of the global economy is likely to contract next year, with the United States, the European Union and China all continuing to stagnate.

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Several years of supply chain instability are causing a growing number of U.S. retail companies to shift some of their production from China to North America. The lingering problems have convinced some executives that it’s time to rethink the business playbook of the past decades.

UK

The UK continued to be plagued by financial market turbulence. Prime Minister Liz Truss reacted by firing her chancellor and canceling part of her tax cut program. But Bloomberg Economics calculates it still needs to find £24bn more to put debt back on a sustainable path.

WE

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A closely watched measure of consumer prices rose more than expected to hit a 40-year high in September, prompting the Fed to raise interest rates even more aggressively to stamp out lingering inflation.

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Retail sales stagnated last month as shoppers became increasingly wary of discretionary buying amid the worst inflationary environment in decades and rising interest rates. Seven of 13 retail categories fell, including lower revenue at car dealerships, furniture stores, sporting goods stores and electronics merchants.

Europe

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The energy crisis in Europe is likely to trigger a contraction in the German economy next year for only the third time since the financial crisis, according to updated government forecasts. Gross domestic product is expected to decline 0.4% in 2023 as soaring electricity costs dampen industrial production and dampen consumer spending, lowering the 2.5% expansion forecast made at the end of April.

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Inflation in Norway and Denmark unexpectedly hit new multi-decade highs last month, dispelling expectations that price growth in the Nordic region has peaked and raising the risk of deeper recessions. Denmark’s inflation rate hit 10% in September, hitting double digits for the first time in four decades, while price growth in Norway accelerated to 6.9%, the fastest pace in 34 years old.

Asia

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Bloomberg Economics has outlined four scenarios for China’s economy over the coming decades, with a base scenario of 4.6% growth on average over the next decade. Their model suggests that a growth rate above 5% over this period – as predicted before the pandemic – is now out of reach, due to the lasting impact of Covid Zero policies, a faster decline in fertility than expected and lower investment due to a gradually shrinking real estate sector.

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China has used a controversial tool to inject funds into political banks for the first time in more than two years, as Beijing increasingly relies on semi-official lenders to prop up the economy while the Monetary easing is limited by rising global interest rates. The relaunch of the tool suggests that the government is seeking all possible means to expand the source of funding for strategic banks.

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The Bank of Korea raised its seven-day repurchase rate by half a percentage point to 3%, its highest level in 10 years. Two members of South Korea’s central bank board voted against the decision as worries about slowing growth and a slowing housing market fueled renewed caution about the central bank’s policy trajectory.

Emerging Markets

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Brazil’s consumer prices fell for the third consecutive month, bolstering President Jair Bolsonaro’s economic credentials ahead of the October 30 presidential run-off. Official data showed the monthly inflation rate fell 0.29% in September, the biggest drop in the month since the data series began in 1980.

–With help from Iain Rogers, Andrew Rosati, Augusta Saraiva, Qizi Sun, Ott Ummelas, Fran Wang, Arne Delfs, Tom Hancock, Hooyeon Kim, Sam Kim, John Liu, Eric Martin and Jeannette Neumann.

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