The global economy advances at different speeds, showing that a financial equilibrium is far away. The latest central bank decisions have highlighted the complexity of the moment.
Central banks spies of a faltering economy: this emerges from some considerations by economists and strategists.
From pauses to rate hikes and dovish tones, the world’s major central banks took very different tones on monetary policy last week.
The European Central Bank hiked rates on Thursday and surprised markets with a worsening inflation outlook, which has investors pricing in further rate hikes in the Eurozone.
This followed a meeting of the Federal Reserve in which the central bank decided to suspend rate hikes. A few days earlier, the central bank of China lowered its key medium-term lending rates to stimulate the economy. In Japan, where inflation is above target, the central bank has left its ultra-accommodative policy unchanged.
This disparity of strategy in the various areas of the world translates into a chaotic global economic and financial state and is still not very reassuring. How to read central bank decisions?
Central banks and monetary policy: all the signs of an economy in chaos
Observing what has been decided and estimated by the most important central banks in the world, the picture that emerges is highly heterogeneous.
In Europe, inflation has fallen in the bloc that uses the euro, but remains well above the ECB’s target. This is also the case in the UK, where the Bank of England is expected to hike rates on Thursday after very strong jobs data.
The Fed, which started its hiking cycle ahead of the ECB, decided to take a breather in June but said there would be two more rate hikes by the end of the year, which means that its hike cycle is not yet complete.
The picture is different in Asia. China’s economic recovery has stalled, with falling domestic and external demand leading policymakers to step up support measures in a bid to revive activity.
In Japan, which has battled a deflationary environment for many years, the central bank said it expects inflation to fall by the end of the year and has decided not to normalize policy just yet.
“Each central bank [tries] to intervene for its economy, which obviously includes considerations of changes in financial conditions imposed from abroad”, according to Erik Nielsen, chief adviser to UniCredit’s economic group.
Carsten Brzeski, Global Head of Macro at ING Germany noted on CNBC:
“Putting all these different approaches together shows that not only does there appear to be a new divergence on the right approach to monetary policy, but also demonstrates that the global economy is no longer synchronized, but rather a collection of very different".
All this confirms that the world economy proceeds at different speeds. By adding up the decisions of the various banks, a complex balance emerges, in which the financial and economic balances have not yet been reached. With the caveat that a shock in the US bond market or in European inflation will also have effects on other areas of the world.
Original article published on Money.it Italy 2023-06-19 15:32:29. Original title: Economia globale nel caos: la conferma viene dalle banche centrali
