Global economy on the edge: High stakes at the World Bank / IMF annual meetings

Central bank governors, finance ministers, and policymakers are gathering in Washington, DC, today to kick off the World Bank / IMF annual meetings, where the conversation is expected to center on the most urgent challenges confronting the global economy — slow growth and rising debt. The meetings will wrap this Saturday, 26 October.

We’re one regional war up this year: While it’s been two years since Russia’s invasion of Ukraine and inflation is finally easing across much of the world, this year’s meetings take place amid sluggish economic growth and rising geopolitical tensions in the Middle East. It’s seen that the widening of Israel’s war could place pressure on global finances, while threatening financial markets, trade, and stability — given that it could involve major commodity exporters.

IN CONTEXT- World Bank President Ajay Banga estimated that damage from Israeli strikes on Gaza is now in the USD 14-20 bn range, adding that the World Bank had provided USD 300 mn, 6x what was normally given, to the Palestinian Authority to help it cope with the ongoing crisis. That amount was small compared to the "large number" that would be needed should the conflict spiral to the wider region, he explained.

The big themes in Washington: IMF Managing Director Kristalina Georgieva warned on Thursday (watch, runtime: 3:56) of a challenging economic outlook, stressing the need for fiscal discipline, Bloomberg reports. “Our forecasts point to an unforgiving combination of low growth and high debt — a difficult future,” Georgieva said, urging governments to rein in borrowing and avoid further fiscal deterioration. Check out our coverage of the World Bank’s semi-annual MENA economic outlook.

A sobering economic outlook: “Medium-term growth is forecast to be lackluster, not sharply lower than pre-pandemic, but far from good enough. Not enough to eradicate world poverty, nor to create the number of jobs we require, nor to generate the tax revenues that governments need to service heavy debt loads while attending to vast investment needs, including for the green transition,” the IMF chief said.

REMEMBER- Global public debt is on track to surpass USD 100 tn by year’s end, representing 93% of global GDP, the IMF said in a blog post ahead of the full release of its October 2024 Fiscal Monitor report this Wednesday. Emerging markets are also facing a wall of debt that many could struggle to repay, with a handful of countries at risk of defaulting over the next decade, S&P Global has said.

US + China in the spotlight: With both high debt levels and modest growth on the horizon, the IMF is warning that spillover risks from the US and China could raise borrowing costs globally. “Governments must work to reduce debt and rebuild buffers for the next shock — which will surely come, and maybe sooner than we expect.” Georgieva said. China cut its loan prime rates by 25 bps today, with additional clarity on economic momentum coming from the 3Q industrial profit data later in the week.

Europe faces fiscal challenges: The UK has already been warned of potential market backlash if it fails to stabilize its debt, as Chancellor Rachel Reeves prepares to present the 30 October budget. In the Eurozone, key reports this week include inflation data and consumer sentiment surveys, with Moody’s poised to deliver a rating decision on France that markets are closely watching.

And Russia eyes further tightening: Russia is considering another rate hike this Friday to tame inflation, potentially restoring the benchmark rate to 20% — a level last seen during the emergency hike in 2022. Meanwhile, Hungary is expected to keep rates unchanged.

MARKETS THIS MORNING-

It’s a mixed start to the week in Asia-Pacific markets, as investors adopt a wait-and-see approach to gauge the effect of China cutting its loan prime rates. Meanwhile, Wall Street futures suggest US markets are set to open in the green.

THE CLOSING BELL-

The ADX rose 0.1% last Friday on turnover of AED 862.5 mn. The index is down 3.0% YTD.

In the green: Gulf Pharma Industries (+14.9%), Rapco Investment (+10.3%) and Hayah Insurance Company (+3.2%).

In the red: Chimera S&P KSA Shariah ETF – Income (-3.3%), Bank of Sharjah (-3.0%) and Ghitha Holding (-2.5%).

Over on the DFM, the index rose 0.2% on turnover of AED 233.4 mn. Meanwhile Nasdaq Dubai closed down 0.02%.