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Global tightening cycle over, slower ride for growth ahead


Major central banks are done tightening policy, according to a majority of economists, with the growth outlook wilting across developed and emerging economies along with scant prospects for a surge in inflation.

While that is largely reflected in bond markets, with major sovereign bond yields falling this year, global equities have rallied, and the S&P 500 index is near record highs after its best start this year in more than three decades.

One striking conclusion from the latest surveys of over 500 economists from around the world, covering more than 40 economies, was not just a toning down of the economic outlook, but a clear shift away from long-held optimistic views.

Although economists who answered an additional question were split on whether a deeper global economic downturn was more likely than a synchronised rebound, this year’s growth outlook was downgraded or left unchanged for 38 of the countries polled.

“The recent weakness of global growth will persist for much longer than is commonly assumed. A dovish turn by central banks and stimulus in China will not be enough to boost world GDP growth from its current slow pace,” noted Jennifer McKeown, head of global economics at Capital Economics.

“Disappointing economic performance will leave inflation very low and cause monetary policy to be loosened almost across the board. But we do not see this prompting any meaningful recovery until 2021.”

Global growth was forecast to average 3.4 per cent this year, the lowest since polling began for 2019 almost two years ago. The most optimistic prediction was also more modest than at the start of the year.

The 2020 forecast held at 3.4 per cent, the joint lowest since media began polling on it.

However, the 2019 consensus was a touch higher than the International Monetary Fund’s latest view of 3.3 per cent.

The risk of an escalation of the US-China trade war and prospects of Britain exiting the European Union without a deal — two of the more prominent threats that initially drove the current slowdown — have eased.

Yet most major central banks have been hinting at a move away from hiking rates, and nearly 60 per cent of more than 200 economists who answered a separate question said they were confident the global tightening cycle was over. — Reuters

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