According to its own forecasts, the Monetary Fund expects one-third of all economies to contract next year. This marks a sobering start to the first annual meeting of the IMF and World Bank in three years. The three largest economies, the United States, China and the eurozone, are expected to continue to stagnate, according to IMF chief economist Pierre-Olivier Gourinchas. The worst is yet to come, he said. First, global GDP growth is expected to slow to +2.7% next year, compared with the July forecast of +2.9%. The triggers are higher interest rates in the US, Europe's struggle with rising gas prices and China's ongoing restrictive healthcare policy and weakening real estate sector. Meanwhile, the Monetary Fund maintains its 2022 growth forecast of +3.2%. By comparison, global growth in 2021 was a robust +6.0%.
These International Monetary Fund forecasts depended on a delicate balancing act by central banks. The tightrope walk between fighting inflation and withdrawing liquidity too quickly is currently dictating the mood on the financial markets. The credibility of the central banks is now being put to the test, and it is essential that they correctly assess the current inflation risks. At the same time, the IMF's projections do not show a return of currency devaluation to the target range of the central banks until 2024. In the meantime, unemployment is expected to rise globally and prosperity to decline, which will "feel like a recession."
The central bank of South Korea narrowed its policy gap to the US Federal Reserve by raising its seven-day repurchase rate by half a percentage point to 3%, a ten-year high. This move did not surprise the market. The governor of the Bank of Korea, Rhee Chang-yong, spoke on Wednesday about the challenge of sticking with outsized interest rate hikes to counteract inflation and support its currency, as the latest rate move prompted dissent within the board. The return of the Bank of Korea to a faster pace of raising interest rates highlights the urgency, as the won is on its lowest levels in 13 years.
According to US president Joe Biden, a recession in the USA is possible, but would probably be very shallow. The US economy is resilient enough to withstand such a phase. The question of whether US citizens should prepare for a recession was answered in the negative by the President. The US Federal Reserve does not officially expect a recession, but it does expect unemployment to rise in the coming year and is talking about painful interest rate hikes. The IMF still expects the USA to grow by one percent in 2023.
|08:00||UK||Industrial Production (year-on-year)||1.1%|
|13:00||US||MBA Mortgage Applications||-14.2%|
|14:30||US||Producer Price Index (year-on-year)||8.7%|
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Source: LGT Bank (Switzerland) Ltd.
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