Chief economists on the global economic outlook and other economy stories to read this week

The global economic outlook is stabilizing, but vulnerabilities persist, according to the World Economic Forum's September 2024 Chief Economists Outlook.

While easing inflation and resilient global trade offer some optimism, public debt levels in both advanced and developing economies threaten long-term stability.

Over half of chief economists expect the global economy to remain unchanged, while 37% foresee a downturn in the next year.

Fiscal challenges, driven by rising debt and interest payments, are expected to hinder growth efforts and leave countries ill-prepared for future crises, including climate-related risks and technological shifts. Despite these concerns, the outlook for regions like South Asia and parts of Europe remains more positive.

Confidence is rising that the US has turned a corner on inflation, the report says, with the number of respondents expecting high inflation falling from 21% in 2024 to just 6% in 2025.

The survey underscores the importance of addressing various policy priorities alongside economic growth amid geopolitical tensions and domestic political obstacles.

The Organisation for Economic Cooperation and Development (OECD) had a similar top line for its latest Interim Economic Outlook, describing the global economy as "turning a corner". The OECD has upgraded the UK’s growth forecast for this year, which it expects to surpass that of Japan, Italy and Germany.

Inflation in France and Spain eased more than expected in September, adding pressure on the European Central Bank (ECB) to cut borrowing costs further next month, according to Reuters.

In addition, eurozone consumers lowered their inflation expectations for the next 12 months to 2.7%, the lowest since 2021, according to an ECB poll, signalling progress towards the bank's 2% target.

French consumer prices rose 1.5% year-on-year in September, down from 2.2% in August, driven by a sharp drop in energy costs, specifically petroleum products, according to preliminary data from statistics agency INSEE.

Meanwhile, revised data from Spain's National Statistics Institute shows the economy grew 0.9% in Q1 and 0.8% in Q2, bringing annual growth to 3.1%, surpassing analysts' 2.9% forecast.

These indicators suggest inflation could fall below the ECB’s 2% target, Reuters says. Investors now see a 75% chance of a rate cut at the ECB's October 17 meeting, up from just 25% last week.

However, Germany's unemployment rose by 17,000 in September, higher than expected, as companies grow cautious amid economic uncertainty. Analysts predict that the country's economy, which contracted by 0.1% in Q2, may shrink again in Q3.

US consumer spending rose 0.2% in August, indicating continued economic momentum despite inflation pressures easing, according to the Commerce Department. This follows a 0.5% increase in July.

U.S. Federal Reserve Board Governor Michelle Bowman suggested her colleagues might have been more cautious with last week’s half-point interest rate cut, warning it might be seen as a premature claim of victory over price stability, CNBC reports. While some analysts have voiced concerns about the health of the US economy following the 50 basis point cut, Goldman Sachs' chief financial officer has predicted the move will help set the country on the path to a "soft landing".

Sri Lanka's central bank kept interest rates unchanged, citing domestic and global uncertainties, but highlighted low inflation and stronger-than-expected growth. With the nation emerging from its worst financial crisis in decades, attention now turns to newly elected President Dissanayake's fiscal policies and their impact on the economy.

British retailers experienced their fastest sales growth since May, with the Confederation of British Industry reporting a retail sales balance increase to +4 in September, up from -27 in August. Retailers also anticipate modest expansion for October, as expectations rose from -17 to +5, the highest since April 2023. Despite this positive outlook, sales remain below normal levels for the season, according to retailers.

The Bank of Mexico lowered its benchmark interest rate by 25 basis points to 10.50% on Thursday, the second consecutive cut amid easing price pressures, as predicted by a majority of Reuters' analysts.

Minutes from the Bank of Japan's (BoJ) July meeting revealed a split among policymakers on the pace of future interest rate hikes. The BoJ raised short-term rates to 0.25% in a 7-2 vote, marking a shift away from a decade of stimulus. While some members advocated for gradual increases, others cautioned against rushing the process.

Today, there are over 50 developing countries that spend more than 10% of total revenues on debt servicing costs. This issue is already having an impact on stability around the world, and almost 40% of chief economists expect defaults to rise in developing economies over the next year. Learn more about this issue in this article.

A decade of slow growth faces the world, according to World Bank Chief Economist Indermit Gill, in an interview with the Forum. Developing nations also face rising debt levels, which is forcing them to reallocate capital away from education, health and infrastructure. Read the full interview here.