Confidence plummets around the globe as cost-of-living crises bite

A mood of growing economic pessimism is spreading across the world’s major economies as rising prices and geopolitical uncertainty weigh on business and consumer prospects.

In the past year, with the exception of the early months of the coronavirus pandemic, consumer and business confidence have fallen by the most in a decade, according to research for the FT.

Hard economic data and leading financial indicators are also falling from strong post-Covid-19 levels, signaling that global economic momentum is faltering, the latest bi-annual Brookings FT Tracking Index shows.

The loss of confidence comes as global finance 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 global economy is on the brink of recession.

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

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

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

Confidence indicators have fallen sharply and are at all-time lows since the index began over a decade ago in countries like the US, UK and China. Confidence has fallen even more in emerging markets, which are more exposed to rising food and energy prices.

India is the only major economy in the world to be described as a ‘bright spot’, with strong indicators pointing to robust growth this year and next.

The rest of the world’s major economies are grappling with mounting economic problems, both according to hard data and softer measures such as confidence indicators.

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

Still, the hard data isn’t weak enough to suggest central banks can reverse their battle with high inflation by halting rate hikes, analysts warn.

“Governments and central banks no longer have the luxury of unfettered fiscal and monetary stimulus to stabilize growth and absorb adverse shocks,” Prasad said, adding that governments should avoid unhelpful populist measures such as poorly targeted packages to counteract the impact of higher energy prices counteract .

Despite the deteriorating outlook, many economists believe Treasury Departments and central banks are unlikely to reverse their policies.

The US is under pressure from other countries to moderate the dollar’s rise, which is fueling inflation elsewhere in the world, while China must decide whether to scale back its zero-Covid policy. Germany has been criticized by economists for the extent of its financial support for domestic energy consumers and Britain for unfunded tax cuts at a time of rising inflation.

The recent turmoil in UK financial markets and pension funds has fueled investor nervousness about the financial stability of the global system amid rising interest rates.

Some analysts have warned that simultaneous monetary tightening by many major central banks could create an unnecessarily deep and prolonged global downturn.