Confidence slumps globally as cost-of-living crisis subsides

Increased economic pessimism is playing out across major economies around the world, as soaring prices and geopolitical uncertainty hurt the outlook for businesses and consumers.

Over the past year, consumer and business confidence fell by the most in a decade, excluding the first months of the coronavirus pandemic, according to FT research.

Tough economic data and leading financial indicators are also falling from strong post-Covid-19 levels, signaling that momentum in the world economy is faltering, the recent two-year Brookings-FT tracking index most shows.

The collapse in confidence came as global financial officials gathered in Washington this week for the annual meetings of the IMF and World Bank. The two agencies are expected to release forecasts that warn the world economy is on the verge of a recession.

Eswar Prasad, senior fellow at the Brookings Institution, said the index’s findings reflect “a wide range of self-inflicted wounds by businesses and governments”. These reasons range from supply chain bottlenecks and weak policy responses in the face of high inflation to China’s zero-Covid policy and fiscal imprudence in countries like the UK. , he said.

“Growth momentum, as well as financial market indicators and confidence, have deteriorated markedly around the world in recent months,” Prasad said.

Line chart The historical strength of a range of confidence indicators shows Confidence indicators have plummeted over the past year

The Brookings-FT Global Recovery Tracking Index (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, for the whole economy. demand and individual countries.

Confidence indexes have plummeted and are at all-time lows since it began more than a decade ago in countries including the US, UK and China. In emerging economies, which are more exposed to rising food and energy prices, confidence fell even more sharply.

India is the only major economy in the world to be described as a “bright spot”, with strong indicators pointing to strong growth this year and next.

The rest of the world’s major economies are grappling with growing economic problems according to both hard data and softer measures such as a confidence index.

“Many countries have been or are on the verge of a full recession amid increased uncertainty and risks,” Prasad said.

Even so, the hard data is not yet weak enough to suggest that central banks can reverse their battle to tackle high inflation by halting rate hikes, analysts warn.

Index line chart The historical strength of a series of composite indicators shows a sharp decline in the momentum of the global economy

“Governments and central banks no longer have the luxury of unbridled monetary and fiscal stimulus to stabilize growth and offset adverse shocks,” Mr. Prasad said. and adds that governments should avoid unhelpful populist policies such as poorly targeted packages to counteract the effects of higher energy prices.

Despite the deteriorating outlook, many economists say it is unlikely that finance ministries and central banks will reverse their strategies.

The US is under pressure from other countries to rein in the dollar’s rise, which is fueling inflation in other parts of the world, while China must decide whether to scale back its policy. your zero-Covid book or not. Germany has been criticized by economists for the size of its financial support for domestic energy users and the UK for its non-refundable tax cuts at a time of high inflation.

The recent turmoil in the UK’s financial markets and pension funds has fueled investor anxiety about the financial stability of the global system as interest rates rise.

Some analysts have warned that the simultaneous tightening of monetary policy by many major central banks could create an unnecessarily deep and prolonged global recession.


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