Chinese Business

The pound rallied and UK government bond yields rose Wednesday as the Bank of England came under criticism for fuelling market uncertainty.

The BoE insisted it would halt on Friday a short-term programme of bond-buying support aimed at quelling volatility triggered by a debt-fuelled UK budget following a Financial Times report the central bank stood ready to intervene further.

“The Bank of England’s messaging to the market over the last 24-hours has been conflicted and confused, causing unnecessary gyrations to the pound and adding to the sense of instability in the markets,” said Interactive Investor analyst Victoria Scholar.

On Wednesday, the yield on the government’s 30-year bond returned above a relatively high level of five percent, and the yield on 10-year bonds hit 4.64 percent, the highest level since 2008 in the midst of the global financial crisis and higher than the level which prompted the BoE’s bond market intervention.

The UK government’s higher borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain’s recession-threatened economy.

The pound rose against the dollar as traders bet on more aggressive interest rate hikes from the BoE on concerns the budget of uncosted tax cuts would further fuel sky-high UK inflation.

Meanwhile, London’s benchmark FTSE 100 index slumped 1.2 percent, with sentiment also dampened by news that the UK economy unexpectedly shrank in August.

Frankfurt’s DAX shed 0.6 percent after the German government said it now expects the economy will contract 0.4 percent next year and inflation will run at seven percent.

Investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China’s Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned: “For many people 2023 will feel like a recession”.

Later, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession.

Investors are now nervously looking ahead to Thursday’s US inflation report, with observers warning that a strong reading could spark another rout on markets.

Even if it showed inflation cooling from a four-decade high, analysts said the Fed would not likely take the single reading as reason to slow down its pace of rate hikes.

Wall Street’s main stock indices fell at the open, with investors disappointed with the latest reading of the producer price index, which nudged down only a tenth of a percentage point to 8.5 percent in September on an annual basis.

The reading “will stoke concerns that there hasn’t been enough improvement on the inflation front to convince the Fed to take a more guarded approach with its rate hikes,” said market analyst Patrick O’Hare at Briefing.com.

Oil prices fell after OPEC trimmed its forecast for growth in oil demand this year and next by half a million barrels per day, citing “recent macroeconomic trends and oil demand developments in various regions.”

OPEC pointed to “the extension of China’s zero-Covid-19 restrictions in some regions, economic challenges in OECD Europe, and inflationary pressures in other key economies, which have weighed on oil demand.”

OPEC and its allies including Russia last week decided to cut output by 2 million barrels per day, a move analysts had warned could backfire as any increase in prices it causes will dent demand by consumers.

– Key figures around 1330 GMT –

London – FTSE 100: DOWN 1.2 percent at 6,802.26 points

Frankfurt – DAX: DOWN 0.6 percent at 12,145.17

Paris – CAC 40: DOWN 0.6 percent at 5,796.74

EURO STOXX 50: DOWN 0.6 percent at 3,320.46

New York – Dow: DOWN 0.2 percent at 29,173.60

Tokyo – Nikkei 225: FLAT at 26,396.83 (close)

Hong Kong – Hang Seng Index: DOWN 0.8 percent at 16,701.03 (close)

Shanghai – Composite: UP 1.5 percent at 3,025.51 (close)

Pound/dollar: UP at $1.1043 from $1.0972 Tuesday

Dollar/yen: UP at 146.78 yen from 145.83 yen

Euro/dollar: DOWN at $0.9702 from $0.9709

Euro/pound: DOWN at 87.90 pence from 88.46 pence

Brent North Sea crude: DOWN 1.1 percent at $93.26 per barrel

West Texas Intermediate: DOWN 1.1 percent at $88.08 per barrel

burs-rl/lcm

The pound rallied and UK government bond yields rose Wednesday, with the Bank of England accused of fuelling markets uncertainty.

The BoE said it would Friday end a short-term programme of bond-buying support aimed at quelling volatility triggered by a debt-fuelled UK budget.

The Financial Times earlier said the BoE stood ready to intervene further.

On Wednesday, the yield on the government’s 30-year bond returned above a relatively high level of five percent.

The UK government’s higher borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain’s recession-threatened economy.

The pound rose against the dollar as traders bet on more aggressive interest rate hikes from the BoE on concerns the budget of uncosted tax cuts would further fuel sky-high UK inflation.

“Markets have gyrated overnight and this morning, following seemingly conflicting messages purportedly from the Bank of England in relation to the time-line of the current temporary UK government bond purchases,” noted BNP Paribas analyst Chris Lupoli.

London’s benchmark FTSE 100 index dropped slightly, with sentiment dampened by news that the UK economy unexpectedly shrank in August.

Investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China’s Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned: “For many people 2023 will feel like a recession”.

Later, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession.

Investors are now nervously looking ahead to Thursday’s US inflation report, with observers warning that a strong reading could spark another rout on markets.

Even if it showed inflation cooling from a four-decade high, analysts said the Fed would not likely take the single reading as reason to slow down its pace of rate hikes.

Aggressive US rate hikes pushed the dollar to a 24-year high against the yen Wednesday, also as Japan’s central bank holds off from hiking its own borrowing costs.

– Key figures around 1100 GMT –

London – FTSE 100: DOWN 0.1 percent at 6,878.50 points

Frankfurt – DAX: UP 0.2 percent at 12,243.18

Paris – CAC 40: UP 0.2 percent at 5,842.54

EURO STOXX 50: UP 0.3 percent at 3,348.95

Tokyo – Nikkei 225: FLAT at 26,396.83 (close)

Hong Kong – Hang Seng Index: DOWN 0.8 percent at 16,701.03 (close)

Shanghai – Composite: UP 1.5 percent at 3,025.51 (close)

New York – Dow: UP 0.1 percent at 29,239.19 (close)

Pound/dollar: UP at $1.1083 from $1.0972 Tuesday

Dollar/yen: UP at 146.49 yen from 145.83 yen

Euro/dollar: UP at $0.9717 from $0.9709

Euro/pound: DOWN at 87.70 pence from 88.46 pence

Brent North Sea crude: UP 0.6 percent at $94.81 per barrel

West Texas Intermediate: UP 0.2 percent at $89.51 per barrel

The pound swung between gains and losses Wednesday after the Bank of England confirmed it will end its support for financial markets at the end of the week.

The news dealt a blow to investors who had been buoyed by a report that the BoE had pledged to lenders it would continue to provide cash if needed after Friday’s deadline.

Asian stocks and the pound started the day under pressure after the UK central bank on Tuesday warned markets it would end to a near two-week programme of support aimed at quelling volatility sparked by the government’s debt-fuelled tax-cutting mini-budget.

Later in the day, there was a spark of optimism that it would act as a backstop after the report in the Financial Times saying it had tried to reassure banks. 

However, the mood changed again as the European day began after BoE officials said the Friday deadline remained.

Sterling moved in a wide range in Asia on the news, from a low of $1.0924 to a high of $1.1057.

Equities in Asia also saw big moves, with markets ending mixed.

Hong Kong endured a three percent swing between gains and losses before ending in the red, while Singapore, Wellington, Taipei and Jakarta were also down.

However, Shanghai, Sydney, Seoul, Manila, Mumbai and Bangkok edged up and Tokyo was flat.

The FTSE in London was also down, with sentiment also dampened by news that the UK economy unexpectedly shrank in August.

“Stepping away as the buyer of last resort is not great for risk or sterling,” said SPI Asset Management’s Stephen Innes after Tuesday’s BoE announcement.

“At the end of the day, UK economic issues, fiscal irresponsibility, and a hawkish Fed will linger. So do not be surprised by a pickup in pound volatility and for a continued move lower as well.”

– Range of crises –

Investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China’s Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned: “For many people 2023 will feel like a recession”.

Later, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession.

Investors are now nervously looking ahead to Thursday’s US inflation report, with observers warning that a strong reading could spark another rout.

Still, analysts said the Fed would not likely take a single positive reading as a reason to slow down its pace of rate hikes as it lasers in on bringing inflation down from four-decade highs.

“I don’t see any imbalances yet that would cause a pivot from the Fed,” said Citigroup’s Veronica Clark on Bloomberg Television.

“The Fed will pay attention to global financial stability concerns, a strong dollar is part of that, but it’s ultimately going to be domestic conditions and what the Fed is seeing on inflation.”

The yen clawed back losses against the dollar, having fallen to a new 24-year low and breaking the level touched last week when Tokyo stepped into the market to support the Japanese unit.

Recession fears and China’s Covid-linked economic woes also kept oil prices in check, after they surged last week on an outsized OPEC output cut, with many warning that demand will plunge as people refrain from spending.

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: FLAT at 26,396.83 (close)

Hong Kong – Hang Seng Index: DOWN 0.8 percent at 16,701.03 (close)

Shanghai – Composite: UP 1.5 percent at 3,025.51 (close)

London – FTSE 100: DOWN 0.2 percent at 6,873.21 (close)

Pound/dollar: DOWN at $1.0970 from $1.0972 Tuesday

Dollar/yen: UP at 146.22 yen from 145.83 yen

Euro/dollar: UP at $0.9711 from $0.9709

Euro/pound: UP at 88.48 pence from 88.46 pence

West Texas Intermediate: UP 0.1 percent at $89.43 per barrel

Brent North Sea crude: UP 0.4 percent at $94.65 per barrel

New York – Dow: UP 0.1 percent at 29,239.19 (close)

The launch of a Japanese rocket taking satellites into orbit to demonstrate new technologies failed after blast-off on Wednesday because of a positioning problem, the country’s space agency said.

It was Japan’s first failed launch in nearly two decades, and the only one for an Epsilon rocket, a solid-fuel model that has flown five successful missions since its 2013 debut.

The unmanned craft took off from Uchinoura Space Center in the southern Kagoshima region, with its lift-off livestreamed by the Japan Aerospace Exploration Agency (JAXA).

But a self-destruct signal was sent to the rocket less than 10 minutes later because of “positioning abnormalities”, said Yasuhiro Funo of JAXA, who led the project.

The livestream was halted and presenters wearing hard-hats told viewers there had been a problem with the launch.

Funo explained at a press conference that a technical issue was detected before the third — and final — stage of the launch, just as the last powerful booster was about to be ignited.

“We ordered the rocket’s destruction because if we cannot send it into the orbit that we planned, we don’t know where it will go,” he said, leading to safety concerns about where the machinery could fall.

After the mission was aborted, the rocket’s parts were assumed to have landed in the sea east of the Philippines, he added.

Japan’s last failed space launch was of a pair of spy satellites to monitor North Korea in 2003, and the only other time JAXA has sent a destroy order to a rocket was in 1999.

– ‘Pulsed-plasma thruster’ –

The 26-metre (85-foot) Epsilon-6 rocket had been carrying a box-shaped satellite due to orbit Earth for at least a year to carry out experiments, as well as eight micro-satellites.

Researchers and private companies had engineered new technologies to be tried out in space as part of the agency’s third Innovative Satellite Technology Demonstration programme.

Their gadgetry ranged from a “pulsed-plasma thruster” to an experiment in “harvesting energy with (a) lightweight integrated origami structure”, according to a JAXA fact sheet.

JAXA describes Epsilon as “a solid-fuel rocket designed to lower the threshold to space… and usher in an age in which everyone can make active use of space”.

It is smaller than the country’s previous liquid-fuelled model, and a successor to the solid-fuel M-5 rocket that was retired in 2006 due to its high cost.

JAXA president Hiroshi Yamakawa apologised for Wednesday’s failure, saying the agency was “terribly sorry that we couldn’t meet the Japanese people’s expectations”.

“We will pour efforts into finding out the cause and will take counter-measures” to prevent a recurrence, Yamakawa said.

Japan’s space programme is one of the world’s largest, and last week JAXA astronaut Koichi Wakata flew to the International Space Station as part of the Crew-5 mission.

JAXA has also been in the spotlight after its mission to the asteroid Ryugu by a space probe named Hayabusa-2, which collected pristine material from the celestial body that is now being analysed for clues to the origins of life.

Australia’s world-beating mining firms are flush with cash and desperate for staff but green-minded workers are shunning the high-paying sector, causing serious staff shortages, the government warned Wednesday.

Australia’s Resources Minister Madeleine King — who oversees the more than US$200 billion-a-year industry — said the mining sector was “stretched” and badly needs to reform and shake its sooty image.

“There is a major problem in attracting and retaining skilled workers,” she told business people in mineral-rich Western Australia.

“A big barrier to attracting these workers is the attitude many young Australians hold towards the resources industry.”

Despite miners paying far more than comparable sectors, King said enrolments in relevant degrees were “dwindling”.

She urged the likes of Rio Tinto and BHP to “get more creative” in attracting young people, suggesting the industry turn “Minecraft-crazed kids” into the real-life miners of tomorrow.

A failure to attract new talent could risk an industry that, she said, “underpins our enviable standard of living”.

Heaving iron ore, coal and other mineral goodies out of the Earth’s lithosphere has been the mainstay of Australia’s economy for decades, helping to avoid numerous crises and recessions.

The country is the world’s largest exporter of iron ore — the main component in steel — and ships out vast amounts of coal, gas, lithium, gold, zinc, diamonds and other resources.

But this year the Australian Resources and Energy Employer Association warned the sector needed an extra 24,000 new workers over the next five years.

It recently described the lack of plant engineers, geologists, drillers, earthmover operators and other staff as “crippling”.

But critics say the industry needs more than an image makeover.

Mining firms have been at the centre of a string of scandals over vast amounts of Earth-warming emissions, allegations of rampant sexual harassment and the recent blowing up of a series of 46,000-year-old Aboriginal rock shelters.

King said sceptics should be reminded that mining was essential for developing green technologies.

“Without the resources sector, there is no net zero,” she said.

Japan’s space agency said it sent a self-destruct order to its Epsilon rocket after a failed launch on Wednesday because of a problem that meant the craft could not safely fly.

The unmanned rocket, on its sixth mission, was taking satellites into orbit to demonstrate “innovative” technologies.

“The rocket can’t continue a safe flight, because of the danger it would create if it falls on the ground,” a JAXA official said in televised comments.

“So we took measures to avoid such an incident, and we sent the signal (to destroy the rocket),” he said, adding that information on the cause of the issue was not immediately available.

It was Japan’s first failed rocket launch since 2003, and public broadcaster NHK said the self-destruct order was issued around 10 minutes after liftoff.

A JAXA livestream of the launch from Uchinoura Space Center in southern Japan’s Kagoshima was interrupted and presenters said there had been a problem, without giving details.

The solid-fuel Epsilon rocket has been in use since 2013.

It is smaller than the country’s previous liquid-fuelled model, and a successor to the solid-fuel “M-5” rocket that was retired in 2006 due to its high cost.

JAXA describes Epsilon as “a solid-fuel rocket designed to lower the threshold to space… and usher in an age in which everyone can make active use of space”.

A box-shaped satellite carried by the rocket, called RAISE-3, had been due to orbit the Earth for at least a year, according to a JAXA fact sheet about the mission that was named “Innovative Satellite Technology Demonstration-3”.

Universities, research institutions and companies had been invited to engineer new technologies to try out on RAISE-3.

They ranged from Tokyo Metropolitan University’s “pulsed-plasma thruster” to an experiment in “harvesting energy with (a) lightweight integrated origami structure”.

As well as RAISE-3, eight microsatellites were also being launched by the Epsilon rocket, the fact sheet said.

Japan’s last failed space rocket take-off was in 2003, when the country aborted the launch of a pair of spy satellites to monitor North Korea.

Asian stocks sank again Wednesday while the dollar held gains against the yen and sterling as the volatility that has characterised markets for most of the year showed no sign of letting up.

Angst-ridden investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China’s Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned: “For many people 2023 will feel like a recession”.

Later, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession.

The latest blow came Tuesday when the Bank of England announced it would stop its emergency bond-buying efforts on Friday, ignoring calls to extend the programme to allow markets to stabilise.

Officials were forced last month to step into financial markets to prevent a collapse in pension funds caused by a spike in bond prices after a debt-fuelled, tax-cutting mini budget by new finance minister Kwasi Kwarteng sparked fears of a surge in borrowing.

The move quelled the crisis — after the pound hit a record-low $1.0350 — but traders were spooked by the prospect of more selling when the BoE removes its support.

Sterling, which had recovered to as high as $1.15 last week, came back under pressure to drop back below $1.10 Tuesday where it remained the next day in Asian business.

Risk assets buckled after the announcement, with all three main indexes on Wall Street turning lower Tuesday, having been in positive territory earlier.

– Fresh volatility warning –

Most of Asia followed suit.

Hong Kong led losses, shedding more than two percent, while Tokyo, Sydney, Shanghai, Singapore, Seoul, Wellington, Jakarta and Taipei were also down. 

“And at least they did not allow the rug to get ripped from under pension funds,” said SPI Asset Management’s Stephen Innes. “But stepping away as the buyer of last resort is not great for risk or sterling.

“At the end of the day, UK economic issues, fiscal irresponsibility, and a hawkish Fed will linger. So do not be surprised by a pickup in pound volatility and for a continued move lower as well.”

Investors are now nervously looking ahead to Thursday’s US inflation report, with observers warning that a strong reading could spark another rout.

The desire to find a safe place to invest also pushed the greenback to a new 24-year high against the yen, breaking the level touched last week when Tokyo stepped into the market to support the Japanese unit.

Investors will be keeping a close eye on developments in Japan, to see if there is another cash injection, though analysts said the yen could strengthen naturally.

“There is so much tension that duration time (above 146 yen) will be short,” said Yoshio Iguchi, of Traders Securities. “The chicken race will continue with people wanting to test the upside but at the same time scared of being countered by intervention.”

And City Index’s Matt Simpson added: “Traders are confident that the yen will weaken, despite comments from government officials that they are watching forex markets very closely.

“But the reality is that the (Bank of Japan) wants a weaker currency, and (is) happy to let it slide so long as its demise is not too volatile.

“As of yet we’re yet to hear any comments from BoJ or (finance ministry) officials, but we suspect comments will surely follow — not that they seem to care.”

Recession fears and China’s Covid-linked economic woes also dragged oil prices back down, having surged last week on an outsized OPEC output cut, with many warning that demand will plunge as people refrain from spending.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.1 percent at 26,364.25 (break)

Hong Kong – Hang Seng Index: DOWN 2.3 percent at 16,451.44

Shanghai – Composite: DOWN 0.9 percent at 2,952.74

Pound/dollar: DOWN at $1.0938 from $1.0972 Tuesday

Dollar/yen: UP at 146.34 yen from 145.83 yen

Euro/dollar: DOWN at $0.9688 from $0.9709

Euro/pound: UP at 88.57 pence from 88.46 pence

West Texas Intermediate: DOWN 1.1 percent at $88.40 per barrel

Brent North Sea crude: DOWN 0.9 percent at $93.43 per barrel

New York – Dow: UP 0.1 percent at 29,239.19 (close)

London – FTSE 100: DOWN 1.1 percent at 6,885.23 (close)

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia’s invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” said International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

“The worst is yet to come and, for many people, 2023 will feel like a recession,” said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP growth forecast to 2.7 percent, 0.2 point down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its weakest since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and continued lockdowns in China as it faces a property crisis.

The world economy is expected to avert recession, but there is about a one-in-four chance that growth could slow to 2 percent or below, Gourinchas warned Tuesday.

“We’ve only had that five times since 1970…this is the oil price shock of 1973, the disinflation of 1981, the 2008 financial crisis…these are all big things that have impacted the global economy,” he told AFP.

– Laser focus –

A key factor behind the slowdown is a policy shift as central banks try to bring down soaring inflation, with higher interest rates starting to take the heat out of domestic demand.

Growing price pressures are the most immediate threat to prosperity, said the IMF’s report, adding that central banks are now “laser-focused on restoring price stability”.

Global inflation is expected to peak at 9.5 percent this year before dropping to 4.1 percent by 2024.

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, Gourinchas warned, “by gravely undermining the hard-won credibility of central banks.”

Asked about the Federal Reserve’s rate hikes, he told a press briefing on Tuesday that the IMF is not calling for an acceleration, but this “doesn’t mean that they should pause on (their) path” either. 

This is because banks were starting from a point of historically-low rates as countries emerged from the pandemic.

Current challenges do not mean a large downturn is inevitable, but the fund warned many low-income countries are either in or close to debt distress.

While the G20 has agreed on a “common framework” for debt restructuring for the poorest countries, only three have qualified and “more progress is needed,” Gourinchas told reporters.

“Time may soon be running out,” he said.

– Slowdown in major economies –

The IMF has also cut forecasts for the world’s two biggest economies, the United States and China.

US economic growth for this year is now pegged at 1.6 percent, 0.7 point below the fund’s July forecast, due to an “unexpected real GDP contraction in the second quarter,” the IMF said.

“Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending,” the report added.

The Fed has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

President Joe Biden conceded that a “slight” recession was a possibility.

“I don’t think there will be a recession,” he told CNN. “If it is, it’ll be a very slight recession. That is, we’ll move down slightly.” 

China’s economy is expected to grow at 3.2 percent this year — its lowest rate in decades, apart from the initial coronavirus outbreak.

The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh on growth.

A slowdown in the Euro area is also expected to deepen next year, the IMF projected, with the German and Italian economies tumbling into recession due to their exposure to Russian gas cuts.

The energy crisis provoked by Russia’s invasion “is not a transitory shock,” the IMF said, describing the global shift in energy trade as “broad and permanent.”

With the large shock, “there is no recovery in sight in the Russian economy” either, Gourinchas told AFP.

Global growth is expected to slow further next year, the IMF said Tuesday, downgrading its forecasts as countries grapple with the fallout from Russia’s invasion of Ukraine, spiraling cost-of-living and economic downturns.

The world economy has been dealt multiple blows, with the war in Ukraine driving up food and energy prices following the coronavirus outbreak, while soaring costs and rising interest rates threaten to reverberate around the globe.

“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic,” said International Monetary Fund economic counsellor Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook.

More than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall, he warned.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

In its report, the IMF trimmed its 2023 global GDP growth forecast to 2.7 percent, 0.2 point down from July expectations.

Its world growth forecast for this year remains unchanged at 3.2 percent.

The global growth profile is its weakest since 2001, apart from during the global financial crisis and the worst of the pandemic, the IMF said.

This reflects slowdowns for the biggest economies, including a US GDP contraction in the first half of 2022 and continued lockdowns in China as it faces a property market crisis.

– Laser focus –

A key factor behind the slowdown is a shift in policy as central banks try to bring down soaring inflation, with higher interest rates starting to take the heat out of domestic demand.

Growing price pressures are the most immediate threat to prosperity, said Gourinchas in the report, adding that central banks are now “laser-focused on restoring price stability”.

Global inflation is expected to peak at 9.5 percent this year before dropping to 4.1 percent by 2024.

Misjudging the persistence of inflation could prove detrimental to future macroeconomic stability, he warned, “by gravely undermining the hard-won credibility of central banks.”

Asked about the Federal Reserve’s rate hikes, Gourinchas told a press briefing on Tuesday that the IMF is not calling for an acceleration, but this “doesn’t mean that they should pause on the path… that we’ve seen” either. 

This is because banks were starting from a point where rates were historically low as countries emerged from the pandemic, he said.

Current challenges do not mean a large downturn is inevitable, but the fund also warned many low-income countries are either in, or close to debt distress.

While the G20 has agreed on a “common framework” for debt restructuring for the poorest countries, only three have qualified and “more progress is needed,” Gourinchas told reporters.

“Time may soon be running out,” he said.

– Slowdown in major economies –

The IMF has also cut forecasts for the world’s two biggest economies, the United States and China.

US economic growth for this year is now pegged at 1.6 percent, 0.7 point below the fund’s July forecast, due to an “unexpected real GDP contraction in the second quarter,” the IMF said.

“Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending,” the report added.

The Federal Reserve has been raising interest rates aggressively to tamp down surging inflation, which is slowing economic activity. And the central bank has said more increases are likely to come.

China’s economy is expected to grow at 3.2 percent this year — its lowest rate in decades, apart from the initial coronavirus outbreak.

The fund cautioned that a worsening of China’s property sector slump could spill over to the domestic banking sector and weigh heavily on growth.

A slowdown in the Euro area is also expected to deepen next year, the IMF projected, with the German and Italian economies tumbling into recession due to their exposure to Russian gas cuts.

The energy crisis provoked by Russia’s invasion of Ukraine “is not a transitory shock,” the IMF said, describing the global shift in energy trade as “broad and permanent.”

It warned that winter this year will be “challenging for Europe,” while “winter 2023 will likely be worse.”

Stock markets mostly slid and oil prices slumped Tuesday as investors grow increasingly fearful that more big interest rate hikes will tip economies into deep recessions.

The mood darkened also on the worsening Ukraine war, weaker demand expectations in China, and the IMF trimmed its growth forecast for next year.

With the focus on inflation, analysts said US consumer price index data released later this week will be crucial to the direction of risk assets. 

Another big reading could spark a fresh equity selloff and a surge in the dollar.

“There is growing pessimism in the markets now and with some big data points to come from the US this week, not to mention the start of earnings season,” noted Craig Erlam, analyst at OANDA trading group.

“Investors should probably brace for more volatility.”

Traders had hoped that bumper rate increases by the US Federal Reserve this year would begin to drag on the economy and slow runaway prices, allowing policymakers to reduce the pace of monetary tightening.

But a forecast-beating US jobs report on Friday highlighted the tough work the country’s central bank has slowing inflation from four-decade highs, and many observers warn recession is virtually inevitable.

– ‘Real danger’ –

World Bank chief David Malpass said Monday there was a “real danger” of a global contraction next year, adding that the surge in the dollar was weakening the developing nations’ currencies and pushing their debt to “burdensome” levels.

However, in its latest forecasts released on Tuesday, the IMF trimmed its 2023 global growth forecast to 2.7 percent. It left its world growth forecast for this year unchanged at 3.2 percent.

But the IMF’s economic counsellor Pierre-Olivier Gourinchas also warned that more than a third of the global economy is headed for contraction this year or next, and the three biggest economies –- the United States, European Union and China –- will continue to stall.

“The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.

– Dollar dips –

Chip manufacturers globally took a pounding from new US export controls aimed at restricting China’s ability to buy and make high-end chips with military applications.

Taipei led the losses in Asia — diving more than four percent — as chip giant TSMC plunged 8.3 percent, while a hefty selloff in Samsung Electronics dragged Seoul down 1.6 percent. Tokyo was also sharply lower owing to a hit to tech firms.

All three markets had been closed Monday and were reacting to Friday’s US announcement for the first time.

Europe’s main equity markets closed lower, but Wall Street pushed into positive territory in late morning trading. 

On currency markets, the dollar dipped after recent strong gains as the United States heads the monetary tightening drive.

The pound rose, but nevertheless remained under pressure despite the Bank of England unveiling further measures to calm markets rocked by the government’s fiscal plans, saying it would increase purchases of government bonds.

“Investors fear that the UK government is borrowing too much and that it won’t be able to balance its books,” said City Index and FOREX.com analyst Fawad Razaqzada.

Oil prices fell, with concerns about Chinese demand front and centre.

“Covid cases are picking up in the country, and the Chinese Communist Party’s newspaper, the People’s Daily, ran a commentary saying the Covid Zero policy is ‘sustainable’, indicating that the country is likely to keep following it if not double down,” said Stephen Innes at SPI Asset Management. 

– Key figures around 1530 GMT –

New York – Dow: UP 0.5 percent at 29,358.39 points

EURO STOXX 50: DOWN 0.5 percent at 3,340.35 

London – FTSE 100: DOWN 1.1 percent at 6,885.23 (close)

Frankfurt – DAX: DOWN 0.4 percent at 12,220.25 (close)

Paris – CAC 40: DOWN 0.1 percent at 5,833.20 (close)

Tokyo – Nikkei 225: DOWN 2.6 percent at 26,401.25 (close)

Hong Kong – Hang Seng Index: DOWN 2.2 percent at 16,832.36 (close)

Shanghai – Composite: UP 0.2 percent at 2,979.79 (close)

Euro/dollar: UP at $0.9719 from $0.9708 on Monday

Pound/dollar: UP at $1.1108 from $1.1059

Euro/pound: DOWN at 87.51 pence from 87.76 pence

Dollar/yen: DOWN at 145.70 yen from 145.72 yen

West Texas Intermediate: DOWN 2.2 percent at $89.15 per barrel

Brent North Sea crude: DOWN 2.2 percent at $94.10 per barrel

burs-rl/cdw