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Momentum in advanced and emerging markets has slowed to its weakest level since the end of Covid-19 lockdowns, with the US one of the few economic bright spots as rising interest rates take their toll elsewhere.
According to a study by the FT, confidence indicators in advanced economies have fallen sharply in recent months, as have indicators of economic activity in both developed and emerging markets, underlining the fragile state of global growth.
The biannual Brookings-FT Global Economic Recovery Tracking Index (Tiger) comes as global policymakers prepare to meet this week in Morocco for the fall meetings of the IMF and World Bank.
Ahead of the meetings, the IMF signaled that the likelihood of a hard landing for the global economy had decreased, thanks in part to the strong performance of the United States.
However, the fund fears that the global economy still faces a weak outlook over the next five years as policymakers grapple with challenges such as high inflation and high government debt.
The slow and uneven recovery since the pandemic has led to a “deepened divergence in economic situations between and within different groups of countries,” Kristalina Georgieva, the IMF’s managing director, said on Thursday. The IMF estimates that the total global economic output loss since 2020 has reached $3.7 trillion.
Eswar Prasad, a senior fellow at the Brookings Institution, said “key growth engines” around the world were slowing due to a confluence of short-term factors and long-term headwinds, including tight monetary policy, geopolitical tensions and high government debt. Rising bond yields – which jumped after Friday’s stronger-than-expected U.S. jobs report – pose another threat.
The Tiger compares indicators of real activity, financial markets and confidence with their historical averages, for both developed and emerging markets.
The latest data shows a decline in confidence levels after a rebound in the spring, with China among the countries recording declines. The indicator of real activity – which includes data such as GDP, retail sales, industrial production and employment – has fallen in both developed and emerging markets. China, Japan and Germany are among others affected by a slowdown.
“Economic activity is weakening across the board and despite the relatively benign performance of financial markets at the start of the year, consumer and business confidence have taken significant hits,” Prasad said.
“Inflationary pressures are easing globally, but rising energy prices and widening geopolitical divides could halt this progress and also impact growth.”
Prasad noted that the US was still experiencing “stable growth” but other advanced economies were in “miserable situations” and several faced bleak prospects. The country’s unemployment rate has barely budged from its decade-long low despite falling inflation.
The fundamental strength of the U.S. consumer is bolstering the resilience of the world’s largest economy – whose dynamism has continually surprised economists and policymakers. Supported by additional savings accumulated since the pandemic and the tight labor market, Americans continue to spend despite a rise in central bank interest rates.
But as savings dwindle, higher gasoline prices take hold and pandemic-era fiscal relief programs expire, some economists warn that a slowdown may be underway.
The Federal Reserve’s aggressive rate hikes, which have pushed the benchmark interest rate range to a 22-year high of 5.25 to 5.5 percent, have not yet had their full impact and represent another headwind to growth.
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