Confidence in prospects for the global economy has been dented following >Britain’s vote to leave the European Union , with a growing view that monetary policy is a fading force and many governments now need to borrow and spend, Reuters polls showed.
Broad worries about political risks are also on the rise everywhere and not restricted just to Brexit’s repercussions and a failed coup in Turkey. The U.S. is entering a period of heightened uncertainty too, leading up to November elections.
Unwelcome time The overarching worry is this more dangerous phase is coming at an unwelcome time, when central bankers don’t have anywhere near the clout they had after the collapse of Lehman Brothers to deal with another major economic or financial downturn.
“Given how fragile the global economy is nearly eight years after the start of the global financial crisis, the last thing it needed was the type of jolt provided by the U.K.’s Brexit vote,” wrote Janet Henry, global chief economist at HSBC.
“We suspect fiscal policy will likely have a larger role to play in many countries from here.”
Reuters polls of above 500 economists across Asia, Europe and the Americas reveal downgrades, or at best no change to growth forecasts compared with previous months, as well as an incrementally weaker inflation across most countries.
Even in the U.S., where most of the economic optimism has been focused in the developed world, there has been a slight downgrade to the growth outlook and no discernible rise in inflation expectations despite a hot job market.
The outlook for global growth this year has held at 3.0 per cent, but was trimmed by 0.1 percentage point to 3.2 per cent for 2017, weaker than the 3.4 per cent forecast this week by the International Monetary Fund.
G20 meet The Group of 20 finance ministers and central bankers will meet in China this weekend, with repercussions from Brexit and dwindling policy options expected to dominate talks.
Concerns about the inability of major economies to generate any amount of inflation have driven financial markets through wild gyrations over the past year, despite the fact U.S. stocks are now near record highs and sovereign bond yields are near record lows almost everywhere.
Expectations for further easing from the Bank of England and the Bank of Japan as well as the European Central Bank have calmed financial markets somewhat.
The expectations are likely to reinforce the existing trend toward higher equity and bond prices as the extra cash has to go somewhere.