Daily Brief: Another Day, Another Grim Forecast For Global Growth

Daily Brief: Another Day, Another Grim Forecast For Global Growth

over 1 year ago3 mins

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The International Monetary Fund (IMF) gave a grim outlook for the global economy on Tuesday.

What does this mean?

The global economy’s taking a real beating these days. For one, China’s faltering housing market and unwavering commitment to its zero-Covid policy are curbing the world’s manufacturing powerhouse and second-biggest economy. And for another, fallout from war in Europe is still sending global food and energy prices through the roof. Central banks, for their part, have been raising interest rates in a bid to soften hard-hitting inflation, but that move risks scuppering economies the world over. And while the IMF believes those banks should stick to their inflation-fighting guns, it thinks things will get worse before they get better. In fact, the fund expects the global economy to grow a measly 2.7% next year, saying around a third of the world’s economies might even shrink. And when you strip out the pandemic and 2008’s financial crisis, that’s the most pessimistic forecast the IMF has published since 2001.

IMF forecast

Why should I care?

Zooming in: The dollar’s dominating.

The Federal Reserve’s one central bank that’s aggressively hoisted rates recently, and that’s bolstered the US dollar. The IMF thinks that’s a massive risk for the many countries – not least those in emerging markets – that hold dollar-denominated debt, as those payments are already growing far loftier. And with more fearful investors likely to flock to safe-haven investments like US government bonds, the dollar might be poised to become even stronger.

For markets: Cheer up, boss

JPMorgan’s CEO gave an equally pessimistic global outlook this week, but it was his prediction that the S&P 500 could fall another 20% that really rattled investors. But chin up guys, we’ve dealt with worse: while that drop would leave the index flagging 39% below its January high, the fall would still pale in comparison to times of the dot-com crash and the financial crisis.

SP 500
Source: Google Finance

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Low Unemployment’s Bad News For Brits

UK jobs image

Data out on Tuesday showed that the UK's unemployment rate fell to its lowest since 1974 in August.

What does this mean?

The UK’s official unemployment figure fell to 3.5% across June, July, and August – a drop economists weren't expecting and an inflation-fueling injection the economy didn't need. A key factor in that rate coming down was rising inactivity (the number of people out of work and not looking for jobs), propelled by record long-term sickness in older workers. That’s not good, obviously. And neither is the fact that the shrinking employment pool is likely to drive wages skyward, as employers try to snare workers with increasingly tantalizing salaries. Sure, in the short term that might fund a few payday blowouts – but in the long run, it means more inflation and an ever-weakening economy.

UK unemployment

Why should I care?

The bigger picture: The BoE with the thorn in its side.

Inflation’s only one of the problems the UK’s contending with at the moment: the Bank of England (BoE) took a fireman’s hose to the burning bond market at the end of last month, bringing in emergency buying measures designed to shore up the value of Britain’s plummeting bonds. The central bank was then forced to expand those rescue efforts on Tuesday, hoping to stop “fire sales” causing yet another meltdown. But with those measures due to wrap up at the end of this week, markets could open with a nosedive come Monday.

For you personally: Homeowners, eat your hearts out.

Higher rates are hitting British homeowners, with the average five-year fixed-rate mortgage now above 6% – the highest since 2009. That means paying a mortgage is more expensive than paying rent, a strange turn of events in a country where mortgage payments have historically undercut rental payments by 20% to 30%. But for Brits looking to get a foot on the property ladder, there is a silver lining here: analysts reckon house prices could fall by 10 to 15% next year.

UK rent vs mortgage
Source: UBS
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