Economy

The International Monetary Fund upgraded its growth forecasts and offered a more optimistic outlook for the world economy.The global economy has been battered by a pandemic, record levels of inflation, protracted wars and skyrocketing interest rates over the past four years, raising fears of a painful worldwide downturn. But fresh forecasts published on Tuesday suggest that the world has managed to defy the odds, averting the threat of a so-called hard landing.Projections from the International Monetary Fund painted a picture of economic durability — one that policymakers have been hoping to achieve while trying to manage a series of cascading crises.In its latest economic outlook, the I.M.F. projected global growth of 3.1 percent this year — the same pace as in 2023 and an upgrade from its previous forecast of 2.9 percent. Predictions of a global recession have receded, with inflation easing faster than economists anticipated. Central bankers, including the Federal Reserve, are expected to begin cutting interest rates in the coming months.“The global economy has shown remarkable resilience, and we are now in the final descent to a soft landing,” said Pierre-Olivier Gourinchas, the chief economist of the I.M.F.Policymakers who feared they would need to hit the brakes on economic growth to contain rising prices have managed to tame inflation without tipping the world into a recession. The I.M.F. expects global inflation to fall to 5.8 percent this year and 4.4 percent in 2025 from 6.8 percent in 2023. It estimates that 80 percent of the world’s economies will experience lower annual inflation this year.The brighter outlook is due largely to the strength of the U.S. economy, which grew 3.1 percent last year. That robust growth came despite the Fed’s aggressive series of rate increases, which raised borrowing costs to their highest levels in 22 years. Consumer spending in America has held strong while businesses have continued to invest. The I.M.F. now expects the U.S. economy to grow 2.1 percent this year, up from its previous prediction of 1.5 percent.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF has warned UK chancellor Jeremy Hunt against cutting taxes, arguing the country needs to curb public borrowing and prioritise spending in areas such as health, education and tackling climate change.Pierre-Olivier Gourinchas, IMF chief economist, told the Financial Times the UK’s focus should be on “the path towards a fiscal consolidation” despite expectations that Hunt will cut taxes at his spring Budget.Hunt should be “trying to rebuild fiscal buffers . . . in the context in which there are important spending needs”, Gourinchas said, rather than add to the £20bn of personal and business tax cuts delivered in November.“We would rather wish they would not do this type of tax cuts, and that they would instead focus on both addressing the spending needs and on the path towards a fiscal consolidation,” Gourinchas added.The comments came as the IMF predicted the UK economy will expand by a tepid 0.6 per cent in 2024, the second-slowest pace in the G7 after Germany and little better than the 0.5 per cent rate estimated for 2023.UK gross domestic product growth is forecast to accelerate to 1.6 per cent in 2025, the IMF added in an update on Tuesday to its most recent World Economic Outlook.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Hunt and Prime Minister Rishi Sunak have stoked expectations that the upcoming March 6 Budget will contain a fresh round of tax giveaways to bolster the Conservatives’ polling figures ahead of the general election.On a visit to Davos, Switzerland, earlier this month, Hunt dropped heavy hints that he wants to cut taxes again at the Budget as he argued lower-tax economies tended to grow faster.The IMF last summer said the Treasury would probably need to lift spending by more in the medium term than it currently expects to preserve “high-quality” public services and invest in the green transition.As a result, the UK needed to bolster taxation on carbon and on property, while eliminating loopholes in wealth and income taxation, the IMF said at the time in its “Article IV” assessment of the UK economy.Real-terms spending by UK government departments is currently meant to rise by just 1 per cent a year, according to Treasury plans. The IMF said the government’s spending plans would be “very challenging to achieve”.Hunt rejected the IMF’s recommendations on tax policy on Tuesday.“The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside national insurance cuts to improve work incentives,” he said.“It is too early to know whether further reductions in tax will be affordable in the Budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth,” Hunt added.UK underlying public debt as a share of GDP is forecast by the Office for Budget Responsibility to rise from 89 per cent this year to more than 93 per cent in three years’ time, before edging down in half a decade.Hunt’s scope for tax cuts will hinge heavily on the remaining “fiscal headroom” that the chancellor has as he tries to meet his self-imposed fiscal rule of ensuring public debt falls as a share of GDP in five years.Richard Hughes, chair of the OBR — the government’s official fiscal watchdog — has said that the £13bn Budget headroom forecast in Hunt’s Autumn Statement in November is heavily exposed to changing assumptions on interest rates and data revisions.Internal estimates from the Treasury suggested last week the headroom going into the March Budget may not be far off the November prediction, leaving Hunt with only modest scope to cut taxes and hit his fiscal target.Gourinchas said it was important that the UK continues its progress towards lower inflation, noting that price growth is coming down faster than expected.Consumer prices inflation edged up to 4 per cent in December from 3.9 per cent the previous month, but that is well under levels exceeding 10 per cent a year earlier.The IMF in its report said in many regions around the world inflation has been falling more rapidly than expected, opening the door to a “soft landing” for the global economy in the wake of aggressive central bank interest rate increases. But it has been counselling against immediate rate cuts given the need to decisively quash inflation.The Bank of England is widely expected to maintain its policy interest rate at 5.25 per cent on Thursday as it seeks to keep the lid on price growth.The IMF said it expected the BoE to hold firm in the coming months, before it cuts its official rate by half a point in the second half of this year.The IMF upgraded its forecasts for global growth this year by 0.2 of a percentage point to 3.1 per cent, and said Russia’s GDP was forecast to rise 2.6 per cent this year, more than double the rate it predicted in October. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Russia’s economy will expand much more rapidly this year than previously expected, according to the IMF, as President Vladimir Putin’s military spending feeds through into wider growth. Gross domestic product is forecast to rise 2.6 per cent this year, more than double the pace the IMF predicted as recently as October, and slightly slower than the 3 per cent expansion estimated for 2023. The Russian upgrade, by 1.5 percentage points, is the largest for any economy featured in an update to the fund’s World Economic Outlook, released on Tuesday.The figures will raise fresh questions over the effectiveness of multiple rounds of western sanctions aimed at depressing the fiscal revenues harvested by the Kremlin to finance its war in Ukraine.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The IMF’s prediction paints a stronger picture of the Russian economy’s immediate outlook than even the Kremlin’s own forecasters. Russia’s conservative central bank forecast growth of just 0.5-1.5 per cent in 2024 last November, a drop from 2.2-2.7 per cent in 2023. The more bullish economy ministry has said growth in 2023 may reach 3.5 per cent but expects a smaller rise of 2.3 per cent this year. Pierre-Olivier Gourinchas, the IMF’s chief economist, said the new projections remained “somewhat preliminary” as the fund’s economists attempted to validate Russian statistics. “It is definitely the case that the Russian economy has been doing better than we were expecting and many others were expecting,” he told the Financial Times in an interview. This could be explained by the strong stimulus provided by government spending in the Russian “war economy”, he said. Firm commodity prices were helping to hold up fossil fuel-related export revenues and were an important contributor to overall activity. But Gourinchas warned that in the longer term the potential growth of the Russian economy was likely to be lower than before the full-scale invasion of Ukraine almost two years ago. Putin, who traditionally leaves macroeconomic policy to his technocrats and has shown even less interest in its finer points since the invasion, has himself predicted that growth will rise even above Russia’s official forecast. The Russian president has said GDP growth for 2023 could rise above the 3.5 per cent prediction and potentially even past 4 per cent. “It’s constantly being calculated, so there might be more GDP growth,” Putin told an audience of businessmen in Khabarovsk this month. Putin said the country’s economic performance was “an amazing result. They are supposed to be smothering and pressuring us from all sides.”A week later, Putin claimed Russia’s 2023 growth was “founded foremost on domestic consumer and investment demand”, which he said included record spending on construction as well as industry, agriculture, tourism, and freight transport.But senior economic officials warned the spending could be overheating the economy. “If you try to drive faster than the car’s design allows and step on the gas as hard as you can, then the engine will overheat sooner or later and we won’t get far. We might go fast, but not for long,” central bank governor Elvira Nabiullina said in December.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The fund’s predictions for Russia’s economy are stronger than those of the World Bank, which earlier this month said it expected growth of 1.3 per cent in 2024 and 0.9 per cent in 2025. The analysis came as the IMF upgraded its forecasts for global growth this year by 0.2 percentage points to 3.1 per cent in an update to its October outlook. Growth is expected to hold firm at 3.2 per cent in 2025, it added. The improved global outlook comes as inflation falls more rapidly than expected in most regions, meaning the likelihood of a “hard landing” — in which elevated borrowing costs induce a sharp slowdown — for the world economy has receded further. “Inflation is falling faster than expected in most regions, in the midst of unwinding supply-side issues and restrictive monetary policy,” the IMF said. It predicted global inflation would fall to 5.8 per cent in 2024 and 4.4 per cent in 2025. Additional reporting by Anastasia Stognei in Riga More

The 30-year fixed mortgage rate rose to nearly 8% in the fourth quarter, the highest in two decades, prompting potential homeowners to put off their purchase plans. Pulte reported revenue of $4.29 billion, missing expectations of $4.47 billion, according to LSEG data. The third-largest U.S. homebuilder by volume sold 7,615 homes in the quarter, down 13.9% from the prior year, and reported a 2.5% drop in average selling prices. Homes sold were also below the company’s estimate of 8,000.Its gross margins of 28.9% also came in below its forecast of 29-29.5%, mirroring a similar trend at D.R. Horton. Atlanta-based Pulte reported net income of $3.28 per share, compared with analysts’ average estimate of $3.22 per share. The company also said it would buy back shares worth $1.5 billion.Shares of the company fell 1% to $105 in premarket trading. More

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The European Union in December reached a provisional deal for artificial intelligence rules to establish a regulatory framework for the development of AI, but it has to be agreed by members and the European Parliament.”Without the use of artificial intelligence, there will be no competitiveness in the future,” said German Digital Minister Volker Wissing, of the pro-business Free Democrats who are strong advocates of protecting civil liberties.”The wrangling over the German position on the AI Act came to an end today with an acceptable compromise,” he added.Wissing said he had campaigned for more innovation-friendly rules and achieved improvements for small and medium-sized businesses to avoid disproportionate requirements but gave no further details.”The negotiated compromise lays the foundations for the development of trustworthy AI,” he said.Earlier, four sources had told Reuters that the FDP, junior partners in Social Democrat Olaf Scholz’s awkward three-way coalition with the Greens, had dropped their objections. More

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and ThursdayGood morning and welcome back to Energy Source, coming to you this week from London and Mexico City.In London, we have woken up to the news that Saudi Arabia has ditched a plan to increase its oil production in a major policy reversal for the kingdom. Stay with the Financial Times for the latest updates on that developing story.I have spent the past few months investigating a little-known oil terminal in south-eastern Turkey. The site has become a staging post for disguised Russian fuels that have been shipped onwards to European buyers in contravention of the EU embargo, ship tracking data shows.In the FT investigation, published this morning, I show how seaborne flows of Russian refined products into the Dörtyol terminal have soared since the first western restrictions on Russian trade began to take effect in the middle of 2022. The terminal has no capacity to further refine fuels on site and does not import oil into Turkey. Instead it functions as a trans-shipment hub, storing the oil before it is shipped to buyers in other countries, mostly in Europe.Turkey has not banned its companies from dealing with Russian oil, so the terminal operator is not breaking any rules by receiving the cargoes. However, evidence of the facility’s role in the movement of Russian oil into Europe is another example of how Russia’s full-scale invasion of Ukraine has redrawn global energy flows, creating opportunities for countries and companies still able to trade with Moscow. It also comes at a time when Turkey’s western allies have grown increasingly frustrated over its continued economic ties with Moscow.Do take the time to check out the full investigation, including some excellent graphics by the FT’s head of visual and data journalism, Alan Smith.Now from Turkey to Mexico, where our Mexico and Central America correspondent Christine Murray has been investigating the country’s fragile energy dependence on imports of natural gas from the US.Thanks for reading — TomVulnerable US-Mexico gas flows face election year testMexico’s next government will face high-stakes decisions about the future of natural gas in the country after years of under-investment have left it dependent on the US and lacking essential infrastructure to broaden benefits from “nearshoring”, analysts say.Almost half of Mexico’s energy mix comes from natural gas, with about 70 per cent of that demand met by the US. The Latin American country is one of the world’s largest importers of the fossil fuel, bringing in almost 60bn cubic metres a year from its northern neighbour, while its own domestic production has been declining for a decade.That makes Mexico highly vulnerable to snowstorms and extreme weather in Texas, a problem exacerbated by critically low storage capacity. Gaps in its pipeline network also aggravate existing inequalities between the better-connected industrial north near the Texas border and less-developed southern states.“It’s split into this very natural dependency because Texas is so competitive with its natural gas, and it makes so much more sense for Mexico to import . . . than it does for it to actually harness its own resources,” said Ryan Berg, director of the Americas programme at the Center for Strategic and International Studies think-tank. “What that means is you have distortions across the market.”The US and Mexican economies have become increasingly intertwined since the North American Free Trade Agreement came into effect in 1994, with deep links spanning everything from agriculture to cars to labour. Washington’s trade war with China has only intensified the connections, with Mexico last year becoming the US’s biggest trading partner, benefiting from billions of new investments from companies shifting capacity closer to the American border in a process known as nearshoring.The reliance creates vulnerabilities though, such as during Winter Storm Uri in 2021, when electricity outages in Texas cut gas flows and caused power cuts across big Mexican industrial cities such as Monterrey. The US-Mexico relationship also contains myriad points of tension, from immigration to the northward flow of drugs, including fentanyl. This year, both countries hold presidential elections, and the rhetoric is escalating as Republican candidates promise to use military force to take out drug cartels.“Countless scenarios could be created where either the US or Mexican government uses gas flows as a political weapon,” researchers at Columbia University’s Center on Global Energy Policy wrote last year. “In the US, both sides of the aisle in Congress could begin to question why the US is even sending gas to Mexico.”Mexico’s energy policy has also swung like a pendulum, with populist President Andrés Manuel López Obrador moving to reverse the historic opening of the oil sector to foreign investment in 2013. His party passed electricity legislation to favour state energy companies over private renewables, and although it was held up in the courts, his administration in effect froze regulatory permits, leading to a collapse in private investment in the sector.Presidential frontrunner Claudia Sheinbaum, a former climate scientist and protégé of the president, has said she will speed up the transition to clean energy and signalled some openness to private investment. But achieving that while balancing her party’s commitment to control by state-run companies CFE and Pemex won’t be easy.“My sense is that Claudia is . . . more open to evidence-based policymaking. She’s not nearly as populist as [López Obrador],” Berg said. “That said, there’s this huge question hanging over the entire campaign, as well as a potential Sheinbaum administration, which is just how independent is she going to be?”The political backdrop for the US natural gas sector, which has been criticised by environmental groups, is also in flux. Last week, President Joe Biden paused the permitting process for new liquefied natural gas terminals in a nod to climate-focused voters ahead of the November election.In Mexico, the sector is less politically fraught, and even López Obrador has approved joint venture pipelines such as a $4.5bn one between state group CFE and Canada’s TC Energy. He has also approved multiple LNG export projects in the country, which will bring in US gas to be liquefied and exported to Europe, further increasing Mexican demand.But building more pipelines, storage and possibly reviving the domestic natural gas industry would require quick work from the next government, said Oscar Ocampo, Coordinator for Energy at the Mexican Institute for Competitiveness.“I think nearshoring is a structural change that isn’t short term,” Ocampo said. “[But] if you want to detonate growth, you have to do it in your first year . . . to be able to see the results as the term comes to an end.” (Christine Murray)Power PointsActivist investor Bluebell Capital Partners has called on BP to ditch its commitment to cut oil and gas output. Read this FT scoop for the full details.In an exclusive interview, Mongolia’s prime minister told the FT he was no longer certain construction will start this year on Russia’s long-planned mega-pipeline from its western gasfields to China.In the US, Myles McCormick probes the link between President Joe Biden’s decision to freeze approvals for new LNG export terminals and the cost of household energy.Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.Recommended newsletters for youMoral Money — Our unmissable newsletter on socially responsible business, sustainable finance and more. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up here More

WASHINGTON (Reuters) – In economic projections issued after their December meeting U.S. Federal Reserve officials on balance saw a measure of underlying inflation ending 2024 at 2.4%, with the lowest of individual estimates at 2.3%.Economists note that would require inflation to reaccelerate from its current six-month trend of just 1.9%, something many consider unlikely given the underlying math is already leaning towards at least a few more months of slowing.If central bankers have penciled in three-quarters-of-a-percentage-point in interest rate cuts on the basis of December’s outlook, what happens in their next projections in March when they may well have to reduce inflation estimates another notch?”Every member of the Federal Open Market Committee envisions and expects a reacceleration relative to the past six months,” said Luke Tilley, chief economist at Wilmington Trust. “I don’t think it is likely…The baseline is too high.”That suddenly improved outlook for inflation has upped the possibility of a rate cut sooner than later, with Fed officials aware that by not reducing borrowing costs as inflation declines they would effectively increase the inflation-adjusted, or “real” cost of money.But they must first convince themselves that inflation is headed back to normal.THE LONG VIEWThe Fed meets Tuesday and Wednesday, and officials are expected to maintain rates at between 5.25% and 5.5%, where they have been since July.They must also take stock of inflation that ended 2023 in much better shape than anticipated at the start of the year, the main reason why lower interest rates are now under consideration.Coming into 2023, the median policymaker projection saw overall inflation as measured by the Personal Consumption Expenditures price index at 3.1% at year’s end, and the core rate excluding food and energy costs was seen at 3.5%. In reality the two came in at 2.7% and 3.2%, respectively, in the last quarter of the year. But even that masks a weakening trend: Core inflation for seven months running has been below 2% on an annualized basis, and that has been marching progressively lower. The Fed does not want that to reverse, which is why policymakers have been reluctant to declare their inflation fight over and still consider some risk to cutting rates too early. But they also don’t want inflation to get too low and again become lodged below their 2% target, a level central bankers globally feel doesn’t interfere with economic decisionmaking and guards against a deflationary drop in prices and wages that can be damaging and difficult to reverse.The Fed struggled to hit its target until the pandemic. While the run up in prices then was fast and painful, looked at over the long-term PCE is now only about 2.1% higher than it would have been if officials had met their inflation goal consistently since adopting it in 2012.PERSISTENCEThe challenge is determining if the world is returning to pre-pandemic norms when 2% inflation, or even a touch lower, seemed baked in, a sign of the Fed’s success in “anchoring” the pace of price increases.Reasons exist to think things might have changed, including labor markets rendered perpetually tight by population aging, large government deficits, and new global trade and supply frictions.Those issues have put a premium on watching for inflation’s possible persistence. Though policymakers have discounted arguments of a difficult “last mile” on inflation, they simply reframe the issue as a matter of time: If inflation for some goods and services is proving difficult to tame, the solution they feel is maintaining the current rate for longer and lowering it more slowly, rather than hiking again. While some alternate inflation measures also have fallen, they tend to show less progress than the headline numbers. An Atlanta Fed database shows comparatively high inflation for many consumer goods: The share of items for which prices are rising more than 5% annually remains above the pre-pandemic level.That alone isn’t necessarily a problem. Policymakers distinguish inflation – a generalized increase in what they call the “price level” – from changes in relative prices that can reflect temporary gluts or shortages, innovations or product changes, or other factors that aren’t necessarily “inflationary.”But when large enough shares of the economy experience rising prices, without offsetting low inflation or even price declines elsewhere, policymakers remain concerned.That’s kind of the situation the Fed faces now, with overall inflation in decline but enough persistence on some fronts that they are not ready to declare victory.STICKY SPOTSThe biggest disappointment is housing.Many policymakers see inflation there as likely to slow in coming months. Yet other things like insurance have kept the overall pace of price increases from falling more rapidly. How the Fed characterizes it all this week could give a clue as to when rate cuts might begin.One ex-policymaker who advocated early on for aggressive rate hikes to tame inflation now contends the balance has shifted towards making cuts earlier rather than waiting for more evidence and potentially having to move faster.”Based on the data today I think you can rationalize a quarter-point reduction, and the art is to get the communication right that it is a technical adjustment” made not to stimulate a troubled economy but to account for falling inflation in an economy that is doing well, said former St. Louis Fed President James Bullard, now dean of Purdue University’s business school. “Waiting too long might get you into a situation where the committee has to move too quickly.” More