The world’s leading economies are showing surprising resilience despite facing a perilous moment, according to research for the Financial Times, which suggests the global economy could avoid a sharp downturn this year.
China, the US, the eurozone, India and the UK are all growing faster than expected late last year, the latest edition of the biannual Brookings FT Tracking Index revealed, with consumer and business confidence rising after a bumpy end to 2022. Central banks and institutions such as the IMF were still preparing for a severe downturn in January.
The study comes as global policymakers prepare to meet at the spring meetings of the IMF and World Bank in Washington this week. The fund is expected to confirm that the global economy will grow faster than it forecast at its last October meeting.
Despite high inflation and rising geopolitical and financial risks, there is hardly any sign of the recession that some analysts had feared.
Despite this, CEO Kristalina Georgieva warned that the medium-term prospects for the world economy are the bleakest since 1990.
Eswar Prasad, a senior fellow at the Brookings Institution, a Washington-based think tank, said the recent banking turmoil in Europe and the US had “exposed the weaknesses of the financial systems in major economies and heightened concerns about medium-term growth.” .
Policymakers, particularly central bankers, have “wobbled” in an environment of rapidly multiplying risks, he said.
Still, the index suggested that the world’s two largest economies would do better than analysts had expected in the fall.
China is “ready to post strong growth in 2023,” Prasad said, while the US economy “continued its surprise run despite numerous headwinds.”
China’s recovery would come from the end of its zero-Covid policy and a slowdown in the subsequent wave of infections, with the country expected to meet its 5 percent growth target this year despite an increasingly state-dominated economy.
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US bank stress could weigh on current strength in consumer spending and job growth. But a soft landing is still possible, Prasad said, as inflation expectations ease.
The eurozone and Britain have emerged from the worst of the difficulties from 2022, with wholesale gas prices down more than 80 per cent from peaks last summer. However, high inflation would slow growth.
India saw the benefits of economic reforms in recent years and was poised for another year of strong growth, according to the index.
The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence to their historical averages, for both the global economy and individual countries.
The composite main index showed that economic conditions were close to historical averages in both developed and emerging markets. While hard data had deteriorated since the autumn, confidence indicators had risen, as had financial markets, particularly in emerging markets.
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Prasad said that although activity tracked historical averages, the global economy faced significant headwinds.
The study “underscores a dangerous moment for the global economy, with persistently high inflation, banking sector turmoil and geopolitical risks threatening to weigh on growth,” he said.
If these materialize, they would “damage household and business confidence and are likely to have a negative impact on medium-term growth,” he warned.
Leading emerging markets benefited from inherent momentum and improving political conditions, but outside of these economies the outlook was significantly worse, according to the Tiger Index.
Low-income and frontier economies suffered the most from rising debt servicing costs, weak export demand and governments’ limited ability to stimulate growth while maintaining international financial market confidence.
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