Finance institutions warn of shocks amid global volatility – and other economy stories to read this week

The Bank for International Settlements (BIS) and the International Monetary Fund (IMF) have both expressed serious concerns this week about potential global economic shocks stemming from rising geopolitical risks, climate change and supply chain disruption.

Andréa Maechler, Deputy General Manager of the BIS, warned that central banks can no longer ignore short-term price hikes caused by factors such as crop failures, port blockages, commodity price fluctuations and oil refinery shutdowns, according to the Financial Times.

"At times, forceful monetary tightening will be needed to ensure that inflation expectations remain anchored," she stated.

In parallel, IMF spokesperson Julie Kozack highlighted that escalating conflicts, particularly in the Middle East, could have significant repercussions for the global economy, as reported by Reuters.

"The potential for further escalation heightens risks and uncertainty," she said, noting that affected regions are also grappling with worsening socioeconomic conditions and humanitarian crises.

US job openings rose unexpectedly in August after two monthly declines, though hiring remained weak, indicating a slowing labour market, Reuters reports. This may prompt the Federal Reserve to cut interest rates again in November.

Job openings, a key indicator of labour demand, rose by 329,000 to 8.040 million by the end of August, surpassing the 7.660 million estimate from analysts polled by Reuters.

The Labor Department's JOLTS report revealed layoffs also declined, with 1.13 job openings for every unemployed person in August, up from 1.08 in July. Resignations hit a four-year low, suggesting decreasing confidence in the job market.

This slowdown is linked to cooler hiring after 525 basis points of rate hikes by the US's central bank in 2022 and 2023 to combat inflation.

Richmond Fed President, Thomas Barkin, warned this week that efforts to bring inflation back to its 2% target may take longer than anticipated, limiting potential interest rate cuts.

He told Reuters that while he supported last month's half-percentage-point cut and sees the possibility of another by year end, he was concerned stubborn inflation could prevent rates from dropping as much as expected.

However, he acknowledged that, in the short term, the risks were "modest on inflation and meaningful on unemployment".

Global factory activity weakened in September due to soft demand and economic uncertainty, heightening concerns about fragile growth, reports Reuters. Surveys showed that manufacturing across the eurozone slowed this year, with Europe’s largest economy, Germany, experiencing its sharpest drop in conditions in 12 months. In Asia, Japan also reported a contraction in factory activity, while Taiwan saw slower expansion, according to PMI data.

Despite this, Japan's service-sector activity grew for the third consecutive month in September. Japan's new Prime Minister Shigeru Ishiba expressed hope on 1 October that the central bank would maintain its loose monetary policy to address the deflation that has persisted for nearly three decades.

British services firms also continued to grow in September, though momentum slowed, with prices charged rising at the slowest rate in nearly four years. The S&P Global UK Services Purchasing Managers Index (PMI) fell to 52.4, down from 53.7 in August and below a preliminary estimate of 52.8.

Meanwhile, S&P's Global South Africa PMI for September indicated growth in the country's private sector, driven by increased business activity and easing inflation. It rose to 51.0 from 50.5 in August, marking the second consecutive month above the 50.0 threshold and matching the highest level in over two years.

US dockworkers have ended a three-day strike that disrupted trade on the East and Gulf coasts, which had the potential to influence the presidential election, according to Bloomberg. The strike was estimated to cost the US economy between $3 billion and $5 billion per day.

Kenya's Finance Minister John Mbadi has called for a reduction in the central bank's lending rate due to falling inflation, which decreased to 3.6% in September from 4.4% in August. The government is aiming for an inflation target of 2.5% to 7.5%, with the next interest rate decision set for 8 October.

Italy's economy minister has announced plans to raise taxes on companies benefiting from "favourable business conditions" as part of the 2025 budget, which seeks to cut income taxes and increase the GDP deficit, Reuters reports.

Egypt's GDP growth rate slowed to 2.4% in the fourth quarter of 2023/24, down from 3.8% the previous year, the planning ministry reported. The decline was linked to geopolitical tensions, global uncertainty and government policies aimed at restoring macro-economic stability.

The world economy is grappling with slow growth, marked by successive slowdowns each decade, according to World Bank Chief Economist Indermit Gill. Talking to the Forum's Radio Davos podcast, he warns that rising debt burdens and high interest rates are forcing lower-income countries to divert funds from education, health and infrastructure, while limiting private-sector financing.

Emerging and developing countries face a widening financing gap to achieve the Sustainable Development Goals, requiring private-sector investment alongside public funds. To attract commercial capital, leaders emphasize collaboration, strategic public funding and regulatory reforms to create supportive investment environments.

Despite ongoing vulnerabilities, the global economy shows signs of stabilization, according to the latest Chief Economists Outlook. A majority of chief economists surveyed anticipate that global conditions will remain steady over the next year. Here, economists share their insights on the current economic landscape.