A growing number of economists surveyed by Reuters expressed optimism about the chances for global economy this year and next, though many are still sticking to their projections of interest rate reductions. The risks are still pointing towards greater inflation.

Although the majority of major central banks were successful in containing rapidly rising inflation rates last year through rate rises, the possibility of price pressures rising again has been maintained by a robust global economy with robust employment and pay growth.

Overall, 114 out of 202 experts who answered a question about inflation in the worldwide survey, which was conducted from July 8 to 25, encompassing roughly 50 top nations, expressed a 56% majority that it was more likely to be greater than they predicted for the rest of the year. Likewise, with rates.

The world economy was predicted to expand 3.1% this year and the next year, which is an improvement above the 2.9% and 3.0% expected in an April survey and approximately in line with the most recent estimate from the International Monetary Fund.

Even with that improvement, rate cuts by several central banks are still anticipated by year’s end—at least twice.

“I think the big story here is that growth globally has managed to keep grinding ahead … the global economy has managed to hang in there in the face of a lot of stresses and strains and of course the major tightening cycle of the past two years,” Douglas Porter, chief economist at BMO Capital Markets, said.

“It’s still growing a little faster than 3% despite a wide variety of challenges … Our call is for growth to hang in there in the neighborhood of 3% through the second half.”

Though fears about the world’s second-largest economy, China, persist, this confidence contrasts with early this year’s doubts about whether the U.S. economy could withstand such an aggressive season of monetary tightening without a slump.

Out of the 48 top economies surveyed, growth rates have improved for 24 of them from three months ago. Of these, 13 are from established nations, where there were worries about declining demand, and the other 11 are from developing economies.

Six economies remained steady while the other eighteen witnessed a deterioration.

However, the poll revealed that among the main central banks, analysts anticipate rate cuts from the Federal Reserve, the Bank of England, and the European Central Bank three times this year.

Compared to investors and financial traders, forecasters have maintained a more constant perspective. At the beginning of the year, aggressive market pricing for rate reduction dropped from six Fed cuts to one or two, and is now back to three.

As long as growth continues, inflation will largely determine when and to what extent interest rates may fall. 19 out of 27 central banks that have an inflation goal were predicted to miss it by the end of 2024, which is a sizable majority.

James Rossiter, head of global macro strategy at TD Securities, stated that “risks are building… in global core goods prices, where shipping costs are nearing 2021/22 highs.”

“We don’t expect as big a boost to inflation this time around … But the threat of higher core goods inflation could reduce the offset to sticky services inflation and slow rate cuts.”

When asked which aspect of core inflation will be the most sticky for the rest of 2024, 56 out of 104 respondents said services, with 30 more people selecting housing and rent. The other eighteen mentioned others.

131 out of 220 respondents, or 60% of the sample, predicted that interest rates will likely rise rather than fall by the end of the year.

(Adapted from Reuters.com)

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