Confidence plummets around the world as cost-of-living crisis bites

An environment of growing economic pessimism is taking hold in the world’s major economies, as soaring prices and geopolitical uncertainty damage the outlook for businesses and consumers.

In the last year, consumer and business confidence fell the most in a decade, with the exception of the initial months of the coronavirus pandemic, according to research by the FT.

Hard economic data and leading financial indicators are also falling from strong post-Covid-19 levels, signaling that momentum in the global economy is stalling, the latest Brookings-FT semi-annual tracking index showed.

The collapse in confidence comes as world financial officials gather in Washington this week for the annual meetings of the IMF and World Bank. The two bodies are expected to release forecasts warning that the world economy is on the verge of recession.

Eswar Prasad, a senior fellow at the Brookings Institution, said the index’s findings reflected “a series of self-inflicted wounds” by companies and governments. These ranged from supply chain bottlenecks and weak policy responses to high inflation to China’s covid-zero policy and fiscal recklessness in countries like the UK, he said.

Prasad said: “Growth momentum, as well as financial market and confidence indicators, have deteriorated markedly around the world in recent months.”

Line chart of the historical strength index of a range of confidence indicators showing that confidence indicators have fallen considerably over the past year

The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, both for the global economy and for individual countries.

Confidence indicators have fallen sharply and are at record lows since the index began more than a decade ago in countries including the US, UK and China. In emerging economies, which are more exposed to rising food and energy prices, confidence has fallen further.

India is the world’s only major economy 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 struggling with growing economic problems according to hard data and softer measures, such as sentiment indicators.

“Many countries are already in or on the brink of full recession amid heightened uncertainty and rising risks,” Prasad said.

Despite this, the hard data is not yet weak enough to indicate that central banks may back down from their fight to tackle high inflation by halting rate hikes, analysts warned.

Historical strength index line chart of a composite range of indicators showing that growth momentum in the global economy has slackened

“Governments and central banks can no longer afford unfettered fiscal and monetary stimulus to stabilize growth and offset adverse shocks,” Prasad said, adding that governments should avoid unhelpful populist policies such as misguided packages. to offset the impact of higher energy prices. .

Despite the worsening outlook, many economists believe finance ministries and central banks are unlikely to reverse their strategies.

The United States is under pressure from other countries to moderate 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 UK for unfunded tax cuts at a time of runaway inflation.

Recent turmoil in UK financial markets and pension funds has fueled investors’ nervousness about the financial stability of the global system as interest rates rise.

Some analysts have warned that the simultaneous tightening of monetary policy by many major central banks could produce an unnecessarily deep and prolonged global recession.

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