Washington: Despite the fact that most central banks are at or near the end of their rate hike cycle, persistently high inflation remains the biggest economic worry this year, according to Reuters polls of economists who also raised their 2023 growth projections from three months ago.
Given that the global economy has performed better than anticipated thus far this year and that most major economies were predicted to avoid an actual recession or only experience a brief one, policymakers will have their work cut out for them in containing inflation.
The majority of the 45 economies covered saw an improvement in their median predictions since the January poll. The survey estimated global growth at 2.5% for the year, up from the 2.1% expectation made three months prior but still below the 2.8% forecast of the International Monetary Fund.
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Additionally, economists have improved their outlook for inflation. Over two-thirds of the 45 economies surveyed had their median forecasts raised, and economists said they were preparing for inflation to exceed rather than fall short of their forecasts.
207 out of 268 economists who responded to an additional question said the bigger risk to their inflation forecast for 2023 was for it to be higher than they anticipated. Only 61 people said it might be lower than expected.
"How much economic weakness will be required to bring inflation under control is the big macro question of the day. Our argument is that there has been little actual pain while there has been little progress in bringing down global inflation, according to Ethan Harris, head of global economics research at Bank of America Securities (NYSE:BAC).
Investors are attempting to look ahead to a more normal period, but the rebalancing must first take place, he continued.
The poll's results, which do not point to a Federal Reserve easing soon, are at odds with market expectations that easing in U.S. policy will begin by year's end.
According to the most recent Reuters poll, the Fed was expected to deliver its final 25-basis-point rate increase in May before remaining unchanged for the remainder of 2023.
Next week and again in June, the European Central Bank was anticipated to increase its deposit rate by a comparable amount, and a rate increase is also anticipated from the Bank of England for May.
A slim majority of economists, 94 out of 176, chose persistently high inflation as the biggest risk to the world economy in the near future. The remaining 82 people selected economic turmoil.
The health of regional banks in the U.S. and Europe was a concern for the financial markets throughout much of March, but those worries have since subsided.
"As concerns about the crisis recede, inflation worries are reappearing. As the long-anticipated slowdown in core inflation has largely failed to materialise, inflation risks are tilting to the upside, according to James Rossiter, head of global macro strategy at TD Securities.
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In the developed world, where unemployment rates are close to their lowest levels in decades, tight labour markets were also likely to keep growth and inflation high.
It was predicted that the unemployment rate in the United States would increase from its current level of 3.5% to 4.3% by the end of 2023 and average 4.5% in 2024, still being historically low in comparison to previous recessions.
This year and in 2024, average growth was predicted to be 1.1% and 0.8%, respectively. China, the world's second-largest economy, was predicted to increase its economic growth this year from 3.0% to 5.4%.
