World economy's great escape worries G-20 amid surging geopolitical risks

By Ramsey Al-Rikabi and Craig Stirling

If the global economy is heading for a soft landing, there’s likely to be plenty of anxiety along the way. 
 

As the world’s financial elite gather in Washington for meetings of the International Monetary Fund, World Bank and Group of 20, they’ll confront a mixture of slowing growth, stubborn inflation, high interest rates and debt levels, and market-rattling geopolitical risks.

Bloomberg Economics now sees global activity slowing this year to 2.9 per cent — a 0.2 percentage point upgrade from December in what it terms a “great escape” — but still “way below” the pre-pandemic pace.

 

IMF chief Kristalina Georgieva has signaled that the fund will also slightly raise its forecast, to be released Tuesday, from the current 3.1 per cent while warning that the world is heading for “a sluggish and disappointing decade.”

Against that backdrop, investors will closely watch key attendees at the meetings. Scheduled speakers include Federal Reserve Chairman Jerome Powell, US Treasury Secretary Janet Yellen, UK Chancellor of the Exchequer Jeremy Hunt, and the heads of the European Central Bank, Bank of Japan and Bank of England. 

The politics of the moment have hamstrung the G-20 at recent gatherings, and it will likely again be unable to address risks that split its members. 

Russia’s war in Ukraine has dragged into its third year, with US military support in question and Kyiv’s ability to pay for bullets and bond coupons an increasing focus. The Israel-Hamas war in Gaza, meanwhile, risks tipping the Middle East into a wider conflagration.  

Both conflicts, swirling around some of the world’s biggest petroleum suppliers, are pushing energy prices higher, a worrisome sign for inflation fighters.

The IMF has sounded the alarm over the geopolitically-driven fragmentation of the global economy. The divide is broadly between the US and European Union on one side and China and Russia on the other — with the Global South the main battleground for business and influence.

“We have to buckle up for more to come, because it is a more diverse world,” Georgieva said when asked about geopolitical volatility. “And it is a world in which we have seen divergence, not just in economic fortunes but also divergence in objectives.”

Also in focus in the coming week will be the deep debt distress among several emerging market nations, which gorged for nearly two decades on cheap money, mostly from China. Now poor countries are struggling to regain access to capital as creditors fight for their share of the action, a competition with profound implications for Beijing’s influence over global finance. 

What Bloomberg Economics Says:
 

“Relative to expectations that the price for taming runaway inflation would be a rash of recessions, a year of modestly slower global growth looks like a great escape.

The next big question - with growth surprisingly robust will central bank pivots be delayed? We’ve pushed back our call for a first Fed move to July — still earlier than many in the market expect.”

—Tom Orlik, chief economist. For full analysis, click here

Elsewhere, Chinese economic data, UK inflation and wage numbers, and Canada’s budget will be among the key highlights.

US and Canada
 

The US data calendar kicks off Monday with retail sales, and economists project a moderate advance as the first quarter drew to a close, underscoring a resilient yet cautious consumer. The figures don’t take into account the impact of inflation and mostly reflect spending on merchandise.

March data on inflation-adjusted purchases, including outlays for services, due later in the month will provide a more comprehensive view of household demand.

Among housing data in the coming week, a government report on Tuesday is seen showing that beginning home construction settled back in March after a solid February advance. Homebuilders have taken advantage of scant inventory in the resale market over the past year. 

Existing-home sales figures on Thursday are projected to show a decline in March as elevated mortgage rates and prices continue to limit demand. After briefly falling below 7 per cent, the average 30-year fixed mortgage rate has moved higher on expectations the Federal Reserve won’t be quick to lower borrowing costs.

The Fed’s public events calendar is chock full. Along with Powell on Tuesday, New York Fed President John Williams appears Monday on Bloomberg Television, and other appearances include Vice Chair Philip Jefferson as well as regional Fed presidents Mary Daly, Thomas Barkin, Loretta Mester, Austan Goolsbee and Raphael Bostic.

Canadian inflation data for March, released on Tuesday, may show a slight uptick on higher gasoline prices. Core metrics will draw scrutiny, with Bank of Canada Governor Tiff Macklem looking for sustained downward momentum in underlying pressures before cutting rates. 

Finance Minister Chrystia Freeland will release her budget the same day. She’s already announced multiple big-ticket items while pledging to keep the deficit at C$40 billion ($29.2 billion).

Asia
 

China is in the spotlight, with Tuesday’s release of first-quarter gross domestic product data likely to show it’s on track to meet the official 5 per cent growth forecast for 2024. 

The first-quarter expansion probably came in right at 5 per cent year-on-year, a result that would still support the case for a tad more policy support, though Goldman Sachs expects a more robust 7.5 per cent annualized growth rate for the first three months.

Industrial output growth is seen slowing in March, with retail sales holding steady. The drop in property investment may have accelerated a tad. 

China finishes the week with trade data that’s expected to show slower headline growth of exports in March, mainly due to a high baseline last year. 

Elsewhere, consumer inflation in Japan probably slowed in March to 2.7 per cent, marking a full two years that the rate has stayed at or above the BOJ’s 2 per cent target. Japan also gets trade stats, which are forecast to show growth in exports holding steady. 

New Zealand has data for the first quarter that may show price growth picking up from the previous period, and Australia’s unemployment rate is seen rising in March. 

Malaysia also releases first-quarter GDP and Singapore publishes March trade figures. 

Europe, Middle East, Africa
 

The region’s data highlight will be the UK. Wage numbers on Tuesday and Wednesday’s consumer-price report will be scrutinized by BOE officials who are considering when to start cutting rates. 

With the outcome for underlying inflation, which strips out volatile elements such as energy, still likely to land above 4 per cent, and an even higher result probable for pay growth, policymakers may take only limited comfort from the numbers. 

Retail sales will also be released later in the week, which may point to the strength of the British consumer at a time when the economy is showing signs of a factory-led recovery taking hold.

In the euro zone, meanwhile, industrial production on Monday will be the key data point, with an increase anticipated by economists for February that won’t make up for a slump in the prior month. Germany’s ZEW investor sentiment index will also be published. 

In Nigeria on Monday, data is expected to show that annual inflation in March quickened from 31.7 per cent in February because of a sharp drop in the naira, which lost about 30 per cent of its value against the dollar during the first quarter. That was largely due to a second devaluation in January aimed at allowing the naira to trade more freely and close the gap with the unofficial market rate.

Data from Israel will likely show inflation remained muted, accelerating slightly to 2.6 per cent in March from 2.5 per cent as the war against Hamas continues to induce a consumption slump.

In South Africa on Wednesday, price growth is predicted to remain sticky at 5.4 per cent in March versus 5.6 per cent a month earlier due to higher fuel costs. 

The monetary authority in neighboring Namibia is expected to keep its key rate unchanged at 7.75 per cent to safeguard its peg with the rand, and because of upside risks to its inflation outlook from drought conditions and higher oil prices.

Attention generally will focus mostly on the other side of the Atlantic, where almost all the region’s finance ministers and central bankers are in Washington for the IMF meeting.

Latin America
 

The early consensus is that Colombia’s GDP-proxy data printed lower as weak domestic demand and tight financial conditions slowed growth after a jump in January.

Separate reports may also show that manufacturing, industrial production and retail sales all posted negative prints for a 12th straight month.

 

Peru’s GDP-proxy readings for February likely accelerated for a second month as the economy recovers from last year’s recession, its worst in 33 years. Also on tap is March unemployment for the capital city, Lima.

Light weeks in Argentina and Chile will see the publication of March trade results in the former and the central bank’s survey of traders in the latter.

Mexico, too, will be mostly quiet, offering just the weekly international reserves report and February retail sales figures, which saw negative readings for both the monthly and annual series in January.

Brazil’s central bank posts its weekly expectations survey — analysts don’t see inflation back to target before 2027 — and its February GDP-proxy report.

The surprising 2023 Brazilian growth story featured a strong finish to the year that extended into January. 

The combination of a slightly negative output gap and falling interest rates is sustaining brisk consumer demand, underscored by February’s 8.2 per cent jump in retail sales.