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Gulf Press > Business > Growing resilience of the global economy contradicts expectations of rate cuts – News
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Growing resilience of the global economy contradicts expectations of rate cuts – News

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Last updated: 2024/07/30 at 6:53 AM
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Global economists polled by Reuters are expressing optimistic views on growth prospects for the global economy in the upcoming year, noting that the risks are leaning towards higher inflation. Despite the success of major central banks in controlling inflation rates through rapid rate hikes last year, a robust global economy with strong employment and wage growth has kept the possibility of price pressures increasing. A majority of economists surveyed believe that inflation rates are more likely to be higher than initially forecasted for the remainder of the year, as well as interest rates.

The global economy is expected to grow by 3.1 per cent this year and the next, which is an improvement from previous forecasts and aligns with the predictions of the International Monetary Fund. However, even with this growth projection, many central banks are anticipated to implement rate cuts at least twice by the end of the year. Economists are attributing this resilience in global growth to the ability of the economy to withstand various challenges and pressure from tightening cycles. This positive outlook is in contrast to concerns earlier in the year regarding the US economy’s ability to handle aggressive monetary tightening.

Among the 48 top economies analyzed, growth rates for 24 of them have been upgraded from three months ago, with 13 of the upgrades in developed economies and the remaining 11 in emerging economies. Conversely, eighteen economies experienced a downgrade, and six remained unchanged. The survey also highlighted that major central banks, including the Federal Reserve and the Bank of England, are expected to cut rates twice this year, while the European Central Bank is predicted to implement three cuts. Despite consistent views from forecasters, financial traders and investors have shown fluctuations in expectations for rate cuts throughout the year.

With growth rates holding steady, economists emphasize that inflation will largely determine the extent to which interest rates can decrease. The majority of central banks with an inflation target are not anticipated to meet it by the end of 2024. Concerns about increasing risks in global core goods prices, particularly in shipping costs approaching high levels, are also noted. Analysts suggest that the threat of higher core goods inflation could offset sticky services inflation and potentially slow down rate cuts in the future.

When asked about the most sticky component of core inflation for the rest of 2024, economists pointed towards services as the primary concern, followed by shelter and rents. This highlights the importance of monitoring various economic indicators to gauge the impact of inflation and interest rates on global growth. Despite these potential challenges, the overall sentiment among economists is one of cautious optimism regarding the global economy’s ability to navigate through uncertainties and continue to grow at a steady pace.

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News Room July 30, 2024
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