The International Monetary Fund’s report on the outlook for the global economy was the dominant event of the past week, with the Fund warning of rising risks from wars and the expansion of trade protectionism changing the map of global trade. as it had been formed after the fall of the Soviet Union.
In China, commercial banks cut lending rates following the central bank’s call to scale back borrowing costs at the end of September. The moves are part of a package of measures designed by Beijing to boost economic growth and stem a downturn in the property sector.
In global bond markets, the outlook for US monetary policy and uncertainty about the presidential election led to a mini sell-off, which started in the US, spread to Europe and spread to Asia. The world’s biggest bond market, US Treasuries, is on track for one of its worst months in years, with 10-year yields hovering at 4.2% as strong economic data and the emerging “Trump trade” (Trump Trade) sent traders reframing their expectations for the path of interest rates.
In Canada, the central bank accelerated the pace of interest rate cuts by deciding to cut the benchmark overnight rate by 50 basis points to 3.75%. Policymakers sent a message with this choice that the post-pandemic era of high inflation is over.
The main events of the past week as recorded by Bloomberg are the following:
Global economy
The International Monetary Fund revised downwards its forecast for global GDP and expects it to grow to 3.2% in 2024. The Fund has warned for two years that the global economy is likely to expand at its current modest level in the medium term – too little to give nations the resources they need to reduce poverty and tackle climate change.
The global economy heads into the end of the year with unexpected headwinds as slowing inflation paves the way for a soft landing. However, the economy encounters obstacles from the political sphere. The inconclusive US election creates uncertainty, as whoever is elected as the next US president will pursue a different economic policy and therefore have different effects on the economies. The concern is heightened by soaring government debt. In addition, geopolitical turmoil is intensifying with the escalation of conflicts in the Middle East, the war between Russia and Ukraine and the tensions in the Taiwan Strait.
USA – Canada
The cut in Canadian interest rates – widely expected by markets and economists in a Bloomberg survey – is aimed at boosting economic growth and keeping inflation close to the 2% target. Inflation slowed to 1.6% in September, with expectations of inflationary pressures now trending closer to normal.
A growing share of middle-income households were willing to push their debt into riskier territory last year to make the leap to homeownership, according to a Bloomberg analysis of 10 million federal mortgage records from 2018 to 2023.
U.S. stocks are unlikely to sustain their above-average performance of the past decade as investors turn to other assets, including bonds, for better returns, Goldman Sachs Group Inc. strategists said. The S&P 500 is expected to post an annualized nominal total return of just 3% over the next 10 years, according to the analysis. This compares to 13% over the past decade and a long-term average of 11%.
Asia
The cuts in the key lending rate – which is set by a group of major Chinese banks – come after China’s central bank (PBOC) announced measures last month to encourage households and businesses to borrow money. The measures include lowering interest rates and freeing up liquidity to encourage bank lending.
South Korea’s economy grew little last quarter after an earlier contraction, underscoring risks from a weakening export rally, widening geopolitical tensions and a U.S. election that could affect trade-dependent countries.
China will account for less than half of global steel consumption in 2024 for the first time in six years, according to the World Steel Association, as a slump in the country’s property sector hits demand for the metal.
Europe
The downtrend in private sector activity in the euro zone extended for a second month, with the region’s top two economies weighing on output and little sign of a recovery coming.
Russia’s central bank raised interest rates by 200 basis points, setting borrowing costs at 21%, beating analysts’ estimates, which according to Reuters had expected a rise of 100 basis points. The move takes the benchmark interest rate to its highest point since February 2003.
The larger-than-expected hike in interest rates aims to tame rising inflationary pressures as military spending weighs on the economy’s ability to produce goods and services and boost workers’ wages.
According to President Vladimir Putin, Russia is set to spend nearly 9% of its GDP on defense and security this year, the highest figure since the Soviet Union.
Emerging markets
Saudi Arabia’s oil export earnings fell to their lowest level in more than three years as sluggish demand growth weighed on crude prices.
The number of companies in Colombia that will file for bankruptcy this year is on track to reach the highest level in a decade, increasing pressure on President Gustavo Petros to pull the country out of the economic quagmire.
SOURCE: ot.gr
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