World economy’s great escape no cheer to G20

NEW YORK: If the global economy is heading for a soft landing, there’s likely to be plenty of anxiety along the way.

As the world’s financial elite gather in Washington for meetings of the International Monetary Fund (IMF), World Bank and Group of 20 (G20), they’ll confront a mixture of slowing growth, stubborn inflation, high interest rates and debt levels, and market-rattling geopolitical risks.

Bloomberg Economics now sees global activity slowing this year to 2.9% – a 0.2 percentage point upgrade from December in what it terms a “great escape” – but still “way below” the pre-pandemic pace.

IMF chief Kristalina Georgieva has signalled that the fund will also slightly raise its forecast, to be released tomorrow, from the current 3.1% while warning that the world is heading for “a sluggish and disappointing decade”.

Against that backdrop, investors will closely watch key attendees at the meetings. Scheduled speakers include Federal Reserve (Fed) chairman Jerome Powell, US treasury secretary Janet Yellen, UK chancellor of the exchequer Jeremy Hunt, and the heads of the European Central Bank, Bank of Japan (BoJ) and Bank of England (BoE).

The politics of the moment have hamstrung the G20 at recent gatherings, and it will likely again be unable to address risks that split its members.

Russia’s war in Ukraine has dragged into its third year, with US military support in question and Kyiv’s ability to pay for bullets and bond coupons an increasing focus.

The Israel-Hamas war in Gaza, meanwhile, risks tipping the Middle East into a wider conflagration.

Both conflicts, swirling around some of the world’s biggest petroleum suppliers, are pushing energy prices higher, a worrisome sign for inflation fighters.

The IMF has sounded the alarm over the geopolitically-driven fragmentation of the global economy.

The divide is broadly between the United States and European Union on one side and China and Russia on the other – with the Global South the main battleground for business and influence.

“We have to buckle up for more to come, because it is a more diverse world,” Georgieva said when asked about geopolitical volatility.

“And it is a world in which we have seen divergence, not just in economic fortunes but also divergence in objectives.”

Also in focus this week will be the deep debt distress among several emerging market nations, which gorged for nearly two decades on cheap money, mostly from China.

Now poor countries are struggling to regain access to capital as creditors fight for their share of the action, a competition with profound implications for Beijing’s influence over global finance.

Elsewhere, Chinese economic data, British inflation and wage numbers, and Canada’s budget will be among the key highlights.

The US data calendar kicks off today with retail sales, and economists project a moderate advance as the first quarter drew to a close, underscoring a resilient yet cautious consumer.

The figures don’t take into account the impact of inflation and mostly reflect spending on merchandise.

March data on inflation-adjusted purchases, including outlays for services, due later in the month will provide a more comprehensive view of household demand.

Among housing data in the coming week, a government report tomorrow is seen showing that beginning home construction settled back in March after a solid February advance. Homebuilders have taken advantage of scant inventory in the resale market over the past year.

Existing-home sales figures on Thursday are projected to show a decline in March as elevated mortgage rates and prices continue to limit demand. After briefly falling below 7%, the average 30-year fixed mortgage rate has moved higher on expectations the Fed won’t be quick to lower borrowing costs.

The Fed’s public events calendar is chock full. Along with Powell tomorrow, New York Fed president John Williams appears today on Bloomberg Television, and other appearances include vice-chair Philip Jefferson as well as regional Fed presidents Mary Daly, Thomas Barkin, Loretta Mester, Austan Goolsbee and Raphael Bostic.

Canadian inflation data for March, due soon, may show a slight uptick on higher petrol prices.

Core metrics will draw scrutiny, with Bank of Canada governor Tiff Macklem looking for sustained downward momentum in underlying pressures before cutting rates.

Finance Minister Chrystia Freeland will release her budget the same day. She’s already announced multiple big-ticket items while pledging to keep the deficit at C$40bil (US$29.2bil).

China is in the spotlight, with tomorrow’s release of first-quarter gross domestic product data likely to show it’s on track to meet the official 5% growth forecast for 2024.

The first-quarter expansion probably came in right at 5% year-on-year, a result that would still support the case for a tad more policy support, though Goldman Sachs expects a more robust 7.5% annualised growth rate for the first three months.

Industrial output growth is seen slowing in March, with retail sales holding steady. The drop in property investment may have accelerated a tad.

China finishes the week with trade data that’s expected to show slower headline growth of exports in March, mainly due to a high baseline last year.

Elsewhere, consumer inflation in Japan probably slowed in March to 2.7%, marking a full two years that the rate has stayed at or above the BoJ’s 2% target.

Japan also gets trade stats, which are forecast to show growth in exports holding steady.

New Zealand has data for the first quarter that may show price growth picking up from the previous period, and Australia’s unemployment rate is seen rising in March.

The region’s data highlight will be Britain. Wage numbers tomorrow and Wednesday’s consumer-price report will be scrutinised by BoE officials who are considering when to start cutting rates.

With the outcome for underlying inflation, which strips out volatile elements such as energy, still likely to land above 4%, and an even higher result probable for pay growth, policymakers may take only limited comfort from the numbers.

Retail sales will also be released later in the week, which may point to the strength of the British consumer at a time when the economy is showing signs of a factory-led recovery taking hold. — Bloomberg

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