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BENGALURU (Reuters) – According to more than 200 economists surveyed by Reuters, the world economy will experience higher inflation next year. Three-quarters of them believe that the main risk lies in the inflation being higher than their initial forecasts, which implies that interest rates will remain high for an extended period.
While many central banks were initially expected to begin cutting interest rates by mid-2024, the views of a growing number of economists surveyed have shifted this likely date to the second half of next year.
This represents a significant adjustment from earlier predictions this year, when some investment banks forecasted rate cuts by the leading US Federal Reserve and other central banks.
Despite making progress in reducing inflation from its peak levels, the challenge of achieving central banks’ inflation targets remains as prices continue to rise faster than anticipated.
The most recent Reuters survey, conducted between October 6 and October 25 with over 500 economists, projected lowered growth and increased inflation for most of the surveyed 48 economies worldwide until 2024.
A majority of 75%, or 171 out of 228 respondents, indicated a higher risk for the widely upgraded inflation forecasts, while only 57 respondents anticipated lower risks.
These survey results were released following the unexpected news on Thursday that the US economy grew at an annual rate of nearly 5% in the third quarter, highlighting its strength compared to most other economies that are still struggling.
The survey findings also coincide with a statement from European Central Bank President Christine Lagarde, who stated that it is too early to discuss cutting rates following the conclusion of the ECB’s 10-meeting tightening cycle.
Although many central banks, including the Fed and the ECB, have adopted a “higher for longer” narrative on rates throughout this year, some economists and market traders have been hesitant to fully embrace this view.
“I think we all have to keep an open mind that maybe the policy is not restrictive enough,” said Douglas Porter, chief economist at BMO.
“Our forecast is that the Fed has done enough and they don’t need to raise rates any further, but I haven’t closed out the possibility that we could be wrong and the Fed will ultimately have to do more.”
While the majority of economists still predict rate cuts by the Fed in the middle of next year, the latest poll reveals that only 55% support this scenario, as compared to over 70% in the previous month.
The Reserve Bank of New Zealand, often a leader in the interest rate cycle, had also projected to postpone rate cuts until July-September 2024.
Furthermore, the majority support for no rate cuts until the second half of 2024 has strengthened for the Reserve Bank of Australia, Bank Indonesia, and the Reserve Bank of India.
Even the Bank of Japan, which has maintained an extremely loose policy during this period of inflation, is now expected to abandon negative interest rates next year.
It is important to note that most economists agree that the initial easing measures will not mark the start of a rapid series of cuts.
When asked about the triggers for the first rate cut by a central bank, two-thirds, or 149 out of 219, stated that it would only occur if real interest rates become less restrictive due to a decline in inflation.
The remaining 70 respondents said that the first step would signify a shift towards stimulating the economy, indicating that only a minority expect a significant impact on demand and inflation that would not require a monetary response.
The projected global economic growth is expected to decline from 2.9% this year to 2.6% next year.
Global chief economist Nathan Sheets stated, “Central banks are raising rates the highest to fight inflation… This is certainly curbing activity, and it will take some time for global growth to reach above its historical average.” City.
(For other stories from the Reuters Global Economic Survey:)
(Reporting by Hari Kishan; Polling, analysis and reporting by the Reuters poll team in Bengaluru and bureaus in Buenos Aires, Cairo, Istanbul, Johannesburg, London, Shanghai and Tokyo; Editing by Ross Finlay and Tomasz Janowski)