BENGALURU (Reuters) - Major central banks are done tightening policy, according to a majority of economists polled by Reuters, with the growth outlook wilting across developed and emerging economies along with scant prospects for a surge in inflation.
While that is largely reflected in bond markets, with major sovereign bond yields falling this year, global equities have rallied, and the S&P 500 index is near record highs after its best start this year in more than three decades.
One striking conclusion from the latest surveys of over 500 economists from around the world, covering more than 40 economies, was not just a toning down of the economic outlook, but a clear shift away from long-held optimistic views.
Although economists who answered an additional question were split on whether a deeper global economic downturn was more likely than a synchronized rebound, this year’s growth outlook was downgraded or left unchanged for 38 of the countries polled.
“The recent weakness of global growth will persist for much longer than is commonly assumed. A dovish turn by central banks and stimulus in China will not be enough to boost world GDP growth from its current slow pace,” noted Jennifer McKeown, head of global economics at Capital Economics.
“Disappointing economic performance will leave inflation very low and cause monetary policy to be loosened almost across the board. But we do not see this prompting any meaningful recovery until 2021.”
Global growth was forecast to average 3.4 percent this year, the lowest since polling began for 2019 almost two years ago. The most optimistic prediction was also more modest than at the start of the year.
The 2020 forecast held at 3.4 percent, the joint lowest since Reuters began polling on it.
However, the 2019 consensus was a touch higher than the International Monetary Fund’s latest view of 3.3 percent.
The risk of an escalation of the U.S.-China trade war and prospects of Britain exiting the European Union without a deal - two of the more prominent threats that initially drove the current slowdown - have eased.
Yet most major central banks have been hinting at a move away from hiking rates, and nearly 60 percent of more than 200 economists who answered a separate question said they were confident the global tightening cycle was over.
On Thursday, the Bank of Japan dispelled any doubt about its commitment to ultra-loose policies and Sweden’s central bank said a forecast interest rate hike would come slightly later than it had planned.
The U.S. Federal Reserve is done raising rates until at least the end of next year, with about a third of economists polled predicting at least one rate cut by then.
With euro zone economic growth and inflation prospects dimming, the European Central Bank may have missed its opportunity to raise rates before the next downturn.
“The ECB blames the euro zone weakness on a slowdown in China and concerns about the trade war. The Fed, meanwhile, pointed the finger to Europe and China as the main drags on U.S. growth. But with everyone looking across the border for a scapegoat, someone must inevitably be watching the wrong space,” noted Elwin de Groot, head of macro strategy at Rabobank.
“One could speculate that the central banks are pointing the finger just because they have little confidence that their actions are effective.”
Growth forecasts for developed economies - including Germany, France, Italy, Spain, Britain, Japan, Australia, the United States and Canada - for this year and next weakened.
It was not very different for emerging market economies, despite efforts from policymakers to boost sluggish growth.
Economic growth in major economies from Asia to Africa to Latin America was predicted to lose more momentum.
Although India is still expected to be the fastest-growing major economy, growth predictions were lowered compared with the previous poll.
“Looser fiscal and monetary policy should help to cushion the impact of weaker export demand on growth in emerging Asia. Nevertheless, regional growth this year is still likely to slow to its weakest rate in a decade,” added Capital Economics’ McKeown.
Analysis and additional reporting by Indradip Ghosh in Bengaluru; Polling and reporting by the Reuters Polls team in Bengaluru and bureaus in Shanghai, Tokyo, London, Milan, Paris, Oslo, Istanbul, Johannesburg, Toronto, Brasilia, Mexico City, Lima, Buenos Aires, Bogota, Caracas and Santiago; Editing by Ross Finley and Hugh Lawson