BENGALURU: Persistently high inflation remains a huge economic concern this year even as most central banks are at and near the end-game for rate increases, according to Reuters polls of economists who upgraded their 2023 growth forecasts from three months ago.
With the world economy performing better than expected so far this year, most main economies were forecast to escape an outright recession and get away with a shallow one, suggesting that policymakers have their work cut out in taming inflation.
Median forecasts for the majority of the 45 economies covered were upgraded from the January poll. The survey pegged global growth at 2.5 percent for the year, up from 2.1 percent expected three months ago but below the International Monetary Fund’s 2.8 percent view.
Economists have upgraded their inflation outlook
Economists have upgraded their inflation outlook. Median forecasts were raised for over two-thirds of 45 economies polled, and economists said they were bracing for inflation to top their predictions, not undershoot them. More than three-quarters majority of economists, 207 of 268, who answered an additional question said the more significant risk to their 2023 inflation view was for it to be higher than they expected. Just 61 said it could be lower than forecast.
“The macro question of the day is how much economic weakness will be needed to bring inflation under control. Our point is that there has been limited progress in bringing world inflation down with almost no real pain,” said Ethan Harris, head of world economics research at Bank of America Securities.
He said, “While investors are trying to look towards the more normal period ahead, first, the rebalancing needs to happen,” The poll findings, which don’t suggest imminent easing by the Federal Reserve, were at odds with market expectations for United States policy easing to start by end-year.
The latest Reuters poll showed that the Fed was forecast to deliver a final 25-basis-point rate increase in May and hold steady for the rest of 2023.
The European Central Bank expected to hike its deposit rate by a similar amount next week and then again in June, and the Bank of England is forecast to deliver a rate rise in May.
When asked what the huge risk to the global economy was in the near-term, the slim majority of economists, 94 of 176, picked persistently high inflation. The remaining 82 chose financial turmoil.
The Financial markets spent much of March in the grips of worry about the health of regional banks in the United States and Europe, concerns which have since subsided.
James Rossiter, head of the world macro strategy at TD Securities, said, “As crisis fears ebb, inflation worries are again returning. Inflation high risks tilt to the upside as the long-expected slowdown in core inflation has largely failed to materialise”
Tight labour markets in the developed globe, where unemployment rates are near their lowest in decades, were also likely to keep growth and inflation elevated.
The United States unemployment rate was expected to rise from 3.5 percent to 4.3 percent by the end of 2023 and average, 4.5 percent in 2024, still historically low compared to the last recession.
Growth was expected to average 1.1 percent and 0.8 percent this year and in 2024, respectively. Economic growth in the No. 2 economy, China, was expected to rise to 5.4 percent this year from 3.0 percent last year.
