(Bloomberg) — Even before global financial leaders fly to Washington in the coming days, they have been urged in advance by the International Monetary Fund to tighten their belts.
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Two weeks before a potentially era-defining US election, and with the recent global inflation crisis barely behind us, ministers and central bankers gathering in the nation’s capital are facing increasing calls to get their budgets in order now it is still possible.
The fund, whose annual meetings start there on Monday, has already highlighted some of the themes it hopes to highlight in the coming days with a barrage of projections and studies on the global economy.
The IMF’s Fiscal Monitor will include a warning on Wednesday that government debt is expected to reach $100 trillion this year, driven by China and the US. Director Kristalina Georgieva emphasized in a speech on Thursday how this mountain of loans is weighing on the world.
“Our forecasts point to a brutal combination of low growth and high debt – a difficult future,” she said. “Governments must work to reduce debt and rebuild buffers for the next shock – which will surely come, and perhaps sooner than we expect.”
Some finance ministers may receive further reminders before the week is out.
British Chancellor of the Exchequer Rachel Reeves has already faced a warning from the IMF about the risk of a market reaction if debt levels do not stabilize. Tuesday marks the final release of government finance data ahead of its Oct. 30 budget.
Britain’s tax authorities are taking a tougher approach to recovering debts, insolvency specialists say, in a bid to squeeze out £5 billion ($6.5 billion) in extra revenue.
What Bloomberg Economics says:
“For all the talk about black holes, the overall effect of the Reeves budget will be a policy that is looser, not tighter, compared to the previous administration’s plans.”
—Ana Andrade and Dan Hanson, economists. For a full analysis, click here
Meanwhile, Moody’s Ratings has scheduled a possible report on Friday on France, which is currently under intense investor scrutiny. With the rating a step above major competitors, markets will be on the lookout for any outlook downgrades.
As for the biggest borrowers of all, the glimpse of the already published IMF report contains a stark admonition: your public finances are everyone’s problem.
“High debt levels and uncertainty around fiscal policy in systemically important countries, such as China and the United States, could generate significant spillover effects in the form of higher financing costs and debt-related risks in other economies,” the fund said.
Elsewhere in the coming week, a rate cut in Canada and a rate hike in Russia are among possible central bank moves that economists are anticipating.
Click here for what happened last week, and below is our summary of what’s going to happen in the global economy.
USA and Canada
Economists see a number of home sales showing that falling mortgage rates are only helping to stabilize the U.S. housing market. On Wednesday, the National Association of Realtors will release data on contract closings for previously owned homes, followed a day later by government figures on new home sales.
Economists predict a modest increase in sales of both existing and new homes in September. Resale is still hampered by limited inventory, which keeps asking prices high and compromises affordability. While purchases of previously owned properties remain near their weakest pace since 2010, builders have capitalized: New home sales have gradually increased over the past two years with the help of stimulus measures.
Other U.S. data for the week ahead includes September durable goods orders, plus capital goods shipments that will help economists refine their estimates of economic growth in the third quarter. The Federal Reserve also releases its Beige Book, an anecdotal readout of the economy.
Regional Fed officials speaking in the coming week include Jeffrey Schmid, Mary Daly and Lorie Logan.
Meanwhile, expectations are growing that the Bank of Canada will cut rates by 50 basis points after inflation cooled to 1.6% in September and some measures of the labor market remain weak.
Europe, Middle East, Africa
As with other regions, much of the focus will be on Washington; More than a dozen appearances by members of the European Central Bank’s Governing Council are planned in the United States.
That includes President Christine Lagarde, who will be interviewed in Washington on Tuesday by Bloomberg Television’s Francine Lacqua.
Similarly, Bank of England Governor Andrew Bailey will speak in New York on Tuesday, while Swiss National Bank President Martin Schlegel will appear on Friday.
Among the eurozone economic reports, consumer confidence on Wednesday, purchasing manager indexes the next day and the ECB’s inflation expectations survey on Friday could be the highlights. Similarly, Germany’s Ifo Institute will publish its closely watched business confidence indicator at the end of the week.
In addition to the possible rating review for France, S&P may also release reports on Belgium and Finland on Friday.
To the east, two central bank decisions are likely to draw attention, starting Tuesday with Hungary, which may keep borrowing costs unchanged.
The Bank of Russia has indicated that persistent inflation pressures could lead to another rate hike on Friday. They raised rates by 100 basis points to 19% in September, and a similar move would return rates to the 20% level imposed in an emergency hike after President Vladimir Putin launched the full-scale invasion of Ukraine in February 2022.
Finally, South African data on Wednesday expects inflation to slow to 3.8% in September, raising the likelihood of another rate cut next month. The central bank said it now forecasts consumer price growth to remain in the lower half of the target range of 3% to 6% over the next three quarters.
Asia
Lenders in China, with a push from the People’s Bank of China, are expected to join the campaign to revive business activity by cutting their lending rates on Monday. The 1-year and 5-year interest rates fall by 20 basis points to 3.15% and 3.65% respectively.
By the end of the week, data will show whether the country’s industrial profits have recovered in September after falling more than 17% in August. The latest figures show that the economy grew at the slowest pace in six quarters during that three-month period.
Elsewhere, the region will see a cluster of PMIs on Thursday, including from Japan, Australia and India.
Singapore is expected to report on Wednesday that consumer inflation slowed in September, with price growth for the month also coming from Hong Kong and Malaysia.
On Friday, Japan will report the Tokyo CPI for October, a key indicator that will reflect corporate price changes at the start of the second half of the budget.
South Korea will release third-quarter growth figures on Wednesday, which could show that the economy’s momentum has weakened marginally.
During the week, South Korea releases early trade statistics for October, while Taiwan and New Zealand release trade figures for September.
Among the region’s central banks, many leading officials will attend the IMF meetings in Washington. Reserve Bank of Australia Deputy Governor Andrew Hauser will give a fireside chat on Monday, and the bank will publish its annual report three days later.
Adrian Orr, head of the Reserve Bank of New Zealand, will speak on the sidelines of the IMF confab on policy, and Uzbekistan’s central bank will decide on Thursday whether to pause for a second meeting after July’s rate cut.
Latin America
Brazil watchers will be eager to see the weekly forecasts from the central bank’s so-called Focus survey, due out on Monday.
Expectations for inflation, borrowing costs and debt figures have taken a decidedly gloomy turn recently, given doubts about the government’s fiscal discipline.
In Mexico, GDP data should be consistent with the loss of momentum that is causing many economists to lower their third-quarter growth forecasts. The economy is expected to slow for a third year in 2024.
GDP proxy data for Argentina is likely to show that South America’s second-largest economy is sputtering and still in the grip of a recession that is likely to extend until 2025.
Paraguay’s central bank holds its interest rate-setting meeting; Policymakers have kept borrowing costs at 6% for the past six months, while inflation has been slightly above the 4% target.
On the price front, neither investors nor policymakers will be cheered by the mid-month inflation reports from Brazil and Mexico, given the early consensus on higher headlines.
The numbers here are unlikely to do anything to undermine the prospects of another tightening policy from Brazil’s central bank on November 6, while at the same time Banxico will get a third straight rate cut at the November 14 meeting.
–With help from Laura Dhillon Kane, Brian Fowler, Robert Jameson, Monique Vanek, Vince Golle, Brendan Scott and William Horobin.
(Updates with UK tax office in eighth paragraph)
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