A climate of growing economic pessimism is taking hold in the world’s major economies, as soaring prices and geopolitical uncertainty hurt prospects for businesses and consumers.
Over the past year, consumer and business confidence has seen the biggest decline in a decade, barring the early months of the coronavirus pandemic, research by the FT has found.
Strong economic data and leading financial indicators are also falling from high levels after Covid-19, signaling momentum in the global economy has stalled, the latest Brookings-FT biannual tracking index showed.
The collapse in confidence comes as global financial leaders gather in Washington this week for the annual meetings of the IMF and World Bank. Both bodies are expected to issue forecasts warning that the global economy is on the brink of recession.
Eswar Prasad, senior fellow at the Brookings Institution, said the index results reflected “a series of self-inflicted wounds” by corporations and governments. These ranged from supply chain bottlenecks and weak policy responses in the face of high inflation to China’s zero Covid policy and fiscal recklessness in countries like the UK, a- he declared.
Prasad said: “Growth momentum, as well as financial market and confidence indicators, have deteriorated markedly around the world in recent months.”
The Brookings-FT Tracking Index for Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, both for the global economy and for individual countries.
Confidence indicators have fallen sharply and are at historic lows since the index began over a decade ago in countries like the US, UK and China. In emerging economies, which are more exposed to rising food and energy prices, confidence fell even more sharply.
India is the world’s only major economy described as a “bright spot”, with strong indicators pointing to robust growth this year and next.
The other major world economies are grappling with growing economic problems according to hard data and softer measures such as confidence indicators.
“Many countries are already on the brink or on the brink of an outright recession amid heightened uncertainty and growing risks,” Prasad said.
Even so, the hard data is not yet weak enough to indicate that central banks can reverse their fight against high inflation by halting rate hikes, analysts warned.
“Governments and central banks no longer have the luxury of unfettered fiscal and monetary stimulus to stabilize growth and offset negative shocks,” Prasad said, adding that governments should avoid unnecessary populist policies such as poorly targeted programs to counter the impact of rising energy prices. .
Despite the deteriorating outlook, many economists believe finance ministries and central banks are unlikely to reverse their strategies.
The United States is under pressure from other countries to moderate the rise in the dollar, which is fueling inflation in other parts of the world, while China must decide whether or not to reduce its zero-Covid policy. Germany has been criticized by economists for the scale of its financial support for domestic energy consumers, and the UK for unfunded tax cuts at a time of soaring inflation.
Recent turmoil in UK financial markets and pension funds has fueled investor jitters about the financial stability of the global system as interest rates rise.
Some analysts have warned that the simultaneous tightening of monetary policy by many major central banks could produce an unnecessarily deep and prolonged global slowdown.