Forecasting institutions are trimming growth projections, citing a number of challenges, including policy tightening, inflation, Russia’s invasion of Ukraine and pandemic-induced disruptions.
Many global indicators for October-November pointed to slower growth or contraction, as central banks continue to raise interest rates to fight inflation, McKinsey’s Global Economics Intelligence report for November said. Forecasters are trimming growth projections, citing policy tightening, inflation, the Russia-Ukraine war and pandemic-induced disruptions.
The current policy interest rates of the US Federal Reserve (3.75-4 per cent), the European Central Bank (1.50-2.25 per cent) and the Bank of England (3 per cent) all reflect repeated rate rises of 75 basis points, including one in November. Each institution is expected to make a final, possibly smaller, rate hike before the new year, McKinsey said in a press note.
The tightening is intended to manage inflation toward 2 per cent targets. At the moment, the United States is experiencing ‘disinflation’—the period when prices are still climbing but at a slowing pace.
From a 40-year high of 9.1 per cent in June, the US consumer price index has slowed each month, reaching 7.7 per cent in October. In the eurozone, inflation slowed to 10 per cent in November from October’s record high of 10.6 per cent; in the United Kingdom, inflation reached 11.1 per cent, a 41-year high.
Recent signs suggest, however, that absent unforeseen shocks, inflation may have peaked. Natural gas prices in Europe are still twice the prewar level but have fallen below €150 per megawatt hour (Dutch front-month futures) from an August peak of €340.
Trade data (a lagging indicator) show stable levels in September but a slowdown in October. As measured by the CPB World Trade Monitor, trade volumes improved in September (0.1 per cent) and August (0.8 per cent).
Recent data from the Container Throughput Index, however, show a retreat in October, with an index reading of 120.8 (124.2 in September), as throughput slowed in China and Northern Europe.
Sea freight rates, meanwhile, have remained historically high through the pandemic. Rates are highest (but declining) in China and India; they are not as high in the United States and Europe, but are climbing, McKinsey said.
Consumer confidence mainly worsened in October, as measured by the Organisation for Economic Cooperation and Development. Readings dropped in the composite global index and also in most surveyed individual economies, with the United Kingdom and eurozone showing the most downward movement. Only Brazil and India showed improvement.
Consumer spending was also down in October in most surveyed economies; exceptions were Brazil and Great Britain.
Manufacturing is in a mild contraction, on average, worldwide. The JPMorgan global purchasing managers’ index (PMI) had a reading of 48.8 in November, below the expansion threshold of 50. The sector has been in a slow-motion retreat since May’s expansionary reading of 52.3.
Industry and consumer activity sags under weight of inflation and higher interest rates; forecasting institutions trim GDP growth projections for 2023, McKinsey added.
Fibre2Fashion News Desk (DS)