OECD raises inflation forecast for global economy

This week saw more major rate hikes across the world, with 75 basis-point hikes in Sweden, New Zealand and South Africa and full percentage-point moves in Pakistan and Nigeria.

NEW YORK: Central banks around the world must be steadfast in their inflation fight even though economies will suffer as a result, the Organisation for Economic Co-operation and Development (OECD) says.

The organisation boosted its 2023 inflation estimates and said it expects price increases the following year will remain above the targets set by many global central banks.

While economies will slow because of tighter monetary policies, the OECD didn’t forecast a recession.

Though a survey of US manufacturers showed a fifth month of shrinking activity, another report indicated a healthy increase in business investment.

A survey of the eurozone businesses indicated that any downturn may not be severe as initially expected. Meantime, the People’s Bank of China eased reserve requirements for banks to help bolster the world’s second-largest economy.

The world’s central banks must keep raising interest rates to fight pervasive inflation, even as the global economy sinks into a significant slowdown, according to the OECD.

The organisation raised inflation projections for next year and said that while the global economy will suffer a “significant growth slowdown,” it’s not forecasting a recession.

This week saw more major rate hikes across the world, with 75 basis-point hikes in Sweden, New Zealand and South Africa and full percentage-point moves in Pakistan and Nigeria.

Turkey went the opposite way, cutting rates by 150 basis points.

Business activity contracted for a fifth month in November as demand faltered, while inflationary pressures continued to slowly ease.

The S&P Global flash composite purchasing managers’ index slid to the second-lowest level since the immediate aftermath of the pandemic.

Orders placed with US factories for business equipment rebounded in October, suggesting capital spending plans are holding up in the face of higher borrowing costs and broader economic uncertainty.

Capital goods shipments jumped the most since the start of the year, suggesting a solid start to fourth-quarter gross domestic product.

Eurozone businesses see tentative signs that the region’s economic slump may be easing as record inflation cools and expectations for future production improve. A gauge measuring activity in manufacturing and services unexpectedly rose in November, according to S&P Global.

Sweden’s home-price decline accelerated in October, as the Nordic country gripped by the most severe housing slump in three decades shows what may lie ahead for many other developed economies.

For the second time this year, China’s central bank cut the amount of cash lenders must hold in reserve, ramping up support for an economy racked by surging Covid cases and a continued property downturn.

Signs are growing in China that local government debt burdens are becoming unsustainable. Bloomberg*