Aurelia Butler

The ECB plans to conduct a strategy review next year, and communication is set to be a key topic since the era of forward guidance is largely over and central banks are looking for better ways to signal their intentions.Some policymakers have said it is worth looking at the Fed’s dot-plot approach, where each individual policymaker makes their own policy rate projection and these are then plotted into an anonymised graph, giving the tool its name. Nagel, however, joined an already long list of policymakers arguing against the dot plot, saying it could jeopardize independence while the improvement in the bank’s signalling was not entirely clear. “I do not see a compelling case for introducing dot plots for the Eurosystem,” Nagel said in a speech at Harvard University. The argument is that once you start publishing dots, policy watchers will try to identify individual policymakers behind them and put pressure on governors to advocate their national interests over that of the 20-nation bloc.”This could potentially influence the Governing Council’s independence,” Nagel said. Instead, the ECB should refine its current signalling tools and use the upcoming review for this, Nagel argued.”One might be to enhance the communication of our existing measures of uncertainty,” Nagel said. “Another might be to develop new measures such as scenario and sensitivity analyses, as well as improved fan charts.” More

WASHINGTON (Reuters) – The International Monetary Fund on Tuesday raised its forecast for British economic growth this year, offering a small boost to finance minister Rachel Reeves who presents her first annual budget next week.The IMF said its upgrade was due to lower inflation and a cut in Bank of England interest rates though it did not revise up its outlook for 2025.The news is likely to be seized on by Conservative opponents of the new Labour Party government who dispute Reeves’ claim that they left Labour a poor economic legacy after their 14 years in power.”Growth is projected to have accelerated to 1.1% in 2024 and is expected to continue doing so to 1.5% in 2025 as falling inflation and interest rates stimulate domestic demand,” the IMF said in its quarterly global forecast update.In July, the IMF forecast Britain’s economy would grow 0.7% this year. Britain is now on track to have the joint third-fastest growth in the Group of Seven advanced economies alongside France, after being in joint fourth spot with Japan and Italy in July.The IMF’s forecast for British economic growth in 2024 is now higher than that of the country’s budget forecasters whose projections underpin government budget plans. But the IMF is less optimistic about 2025 than the Office for Budget Responsibility, limiting the upside for Reeves from higher tax revenues.Reeves welcomed the higher IMF growth forecast for 2024 and said she would press ahead with measures in her budget on Oct. 30 to shore up the public finances. “That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS (National Health Service) and rebuild Britain,” she said in a statement.Reeves and Prime Minister Keir Starmer have suggested higher taxes on employers and wealthier people are likely to be among the changes announced next week. Last year Britain’s economy grew just 0.3% and suffered a shallow recession in the second half of the year, but it rebounded relatively strongly in the first six months of 2024.Inflation this year is forecast to average 2.6% – the second-highest in the G7 after the United States – before averaging 2.1% in 2025, close to the BoE’s 2% target.Inflation dropped to a three-year low of 1.7% in September and although the BoE forecasts it will pick up slightly, markets expect the central bank to cut borrowing costs again next month, after a first quarter-point rate cut to 5% in August.Adjusted for population growth, Britain’s economic performance is less impressive. The IMF estimates British GDP per head will rise by 0.6% this year and 1.1% next year – well short of Reeves’ goal to top the G7 rankings on this measure for two consecutive years. More

BERLIN (Reuters) – The German economy is expected to stagnate this year, the International Monetary Fund said on Tuesday, cutting its forecast for Europe’s biggest economy, while growth is expected in all the other G7 countries. The IMF had forecast 0.2% growth for Germany in its previous forecasts. This downward revision follows a cut in the German government’s forecasts to a 0.2% contraction in 2024 from 0.3% growth previously expected. Germany’s economy was already the weakest among its large euro zone peers and other G7 countries last year, with a 0.3% decline in gross domestic product.For 2025, the IMF forecast Germany’s economy would grow by 0.8%, having previously projected growth of 1.3% Meanwhile, the euro zone economy is expected to grow by 0.8% in 2024 and 1.2% in 2025. Persistent weakness in manufacturing looks set to weigh on growth for countries such as Germany and Italy, the IMF said in its report. Demand for German industrial goods has continued to weaken, the latest industrial orders data showed. Whereas Italy is expected to benefit from the European Union’s National Recovery and Resilience Plan, Germany is experiencing strain from fiscal consolidation and a sharp decline in real estate prices, the IMF added. Inflation in Germany is expected to fall to 2.4% this year from 6.0% last year, and decline to 2.0% in 2025. More

In July, the IMF lowered its GDP projections for Saudi Arabia’s 2024 GDP by nearly a percentage point from its April estimates to 1.7%.Growth for the Middle East and Central Asia region is forecast at 2.4% in 2024, and projected to increase to 3.9% next year as temporary disruptions to oil production and shipping are expected to fade away, the IMF said.”Compared with that in April, the projection has been revised downward by 0.4 percentage point for 2024, mainly the result of the extension of oil production cuts in Saudi Arabia and ongoing conflict in Sudan taking a large toll,” Tuesday’s report said.The kingdom is the world’s top oil exporter and its public finances remain largely reliant on revenue from hydrocarbons although it has accelerated efforts to bolster non-oil growth and develop new income streams. The IMF projects oil prices will rise by 0.9% in 2024 to about $81 a barrel. It has previously said Saudi Arabia needs prices at close to $100 per barrel to balance its budget. More

TOKYO (Reuters) – The International Monetary Fund (IMF) on Tuesday cut this year’s economic growth forecast for Japan, but projected a rebound in 2025 on the view rising real wages will underpin consumption.The IMF’s upbeat projection on consumption is line with the Bank of Japan’s view that continued wage hikes will boost households’ purchasing power, and keep the economy strong enough to weather further interest rate hikes.In its World Economic Outlook (WEO) report for October, the IMF projected Japan’s economic growth to slow to 0.3% this year from 1.7% in 2023 because of supply disruptions in the auto industry and the fading one-off boost from a surge in tourism. The forecast was cut by 0.4 percentage point from the outlook given in July.The economy is likely to expand 1.1% in 2025 “with growth boosted by private consumption as real wage growth strengthens,” the IMF said.The organization based its forecasts on an assumption that the Bank of Japan (BOJ) would maintain a steady monetary policy path. “The policy rate is projected to continue to rise gradually over the medium term toward a neutral setting of about 1.5%,” the IMF said. Japan’s economy expanded by an annualised 2.9% rate in the second quarter as steady wage hikes underpinned consumer spending, though soft demand in China and slowing U.S. growth cloud the outlook for the export-reliant country.The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress toward achieving its 2% inflation target.BOJ Governor Kazuo Ueda has signalled the bank’s readiness to raise interest rates further if economic and price developments move in line with its forecasts.In forecasts made in July, the BOJ expects Japan’s economy to expand 0.6% in the current fiscal year ending in March 2025, and accelerate to 1.0% in fiscal 2025. It will revise the quarterly projections at its next policy meeting on Oct. 30-31. More

The analysis was included in the IMF’s latest World Economic Outlook, which was released as policymakers meet at the IMF and World Bank annual meetings this week to discuss efforts to boost global growth, deal with debt distress and finance the green energy transition.”The rising adoption of electric vehicles represents a fundamental transformation of the global automotive industry. It will have far-reaching consequences,” the IMF said.The move toward EVs has accelerated in recent years and is seen as a key way to help countries achieve climate goals.In 2022, transportation accounted for 36% of greenhouse gas emissions in the U.S., 21% in the European Union, and 8% in China, the IMF said.Rising adoption of EVs has been supported by the EU’s goal of reducing emissions from cars by 50% for the 2030-2035 period from 2021 levels, while the U.S. government has provided subsidies for EVs and charging stations. The IMF noted that the global automotive industry stands out for having high wages, strong profits, large export markets and using a high degree of technology. The acceleration toward EVs would remake that landscape, particularly if China maintains its current edge in production and exports against U.S. and European rivals. Under realistic EV market penetration scenarios, Europe’s GDP would be reduced by about 0.3% in the medium term, the IMF said.”In these scenarios, employment declines in the automotive sector, and labor reallocates gradually to less capital-intensive sectors (with lower value added per worker),” the IMF said.Both the U.S. and EU have imposed tariffs on Chinese-made EVs to counter what they say are unfair subsidies from Beijing to Chinese manufacturers.Last month, U.S. President Joe Biden’s administration introduced a 100% duty on Chinese EVs, while earlier this month EU member states narrowly backed import duties on Chinese-made EVs of up to 45%.Chinese EV makers have so far priced their vehicles below their rivals, a crucial advantage given EVs currently remain more expensive than gasoline alternatives and demand has been weakening for EVs globally.The French government said earlier this month it would reduce its support for EV buyers, joining Germany, which ended its subsidy scheme late last year. More