An atmosphere of growing economic pessimism reigns in the world’s major economies, with rising prices and geopolitical uncertainty hurting the prospects for businesses and consumers.
Consumer and business confidence fell last year by the most in a decade, with the exception of the early months of the coronavirus pandemic, according to research by the Financial Times.
The latest Brookings-FT tracking indicator showed that tough economic data and key financial indicators are also dropping from strong levels after Covid-19, indicating that momentum in the global economy is slowing.
The collapse in confidence comes as global financial officials gather in Washington this week for the annual meetings of the International Monetary Fund and the World Bank. The two bodies are expected to publish forecasts warning that the global economy is on the verge of contraction.
Eswar Prasad, a senior fellow at the Brookings Institution, said the index’s results reflect a “series of self-inflicted wounds” by companies and governments. He said these ranged from supply chain bottlenecks and weak policy responses in the face of high inflation to China’s non-spreading Covid policy, and financial recklessness in countries such as the United Kingdom.
“Growth momentum, as well as confidence indicators and financial markets, have deteriorated significantly around the world in recent months,” Prasad said.
The Brookings-FT Tracking Index of Global Economic Recovery (Tiger) compares indicators of real activity, financial markets, and confidence with their historical averages, for both the global economy and individual countries.
Confidence indices have fallen sharply and are at their lowest levels ever since the index began more than a decade ago in countries such as the US, UK and China. In emerging economies, which are most exposed to rising food and energy prices, confidence has fallen more sharply.
India is the only major economy in the world to be described as a “bright spot”, with strong indicators pointing to strong growth this year and next.
The rest of the world’s major economies are grappling with mounting economic problems according to both hard data and softer metrics such as confidence indices.
“Many countries are already on the verge of total collapse amid heightened uncertainty and heightened risks,” Prasad said.
Despite this, the hard data is not yet weak enough to suggest that central banks can reverse their fight to tackle high inflation by stemming rising interest rates, analysts warned.
“Governments and central banks no longer have the luxury of unrestricted fiscal and monetary stimulus to stabilize growth and offset adverse shocks,” Prasad said, adding that governments should avoid unhelpful populist policies such as ill-targeted packages to counter the impact of higher energy prices. .
Despite the deteriorating outlook, many economists believe that finance ministries and central banks are unlikely to reverse their strategies.
The United States is under pressure from other countries to cool the rise in the dollar, which is fueling inflation in other parts of the world, while China must decide whether to scale back its zero-Covid policy. Germany has been criticized by economists for the scale of its financial support for domestic energy users, and the United Kingdom for unfunded tax cuts at a time of high inflation.
The recent turmoil in British financial markets and pension funds has investors worried about the financial stability of the global system with interest rates rising.
Some analysts have warned that the simultaneous tightening of monetary policy by several major central banks could result in an unnecessarily deep and prolonged global downturn.