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Businesses and households in major economies are facing challenges in recovering from a period of high inflation, as uncertain growth prospects and political instability dampen their confidence.
Despite relatively stable economic activity, confidence indicators have either declined significantly or remain in negative territory, according to research conducted for the Financial Times.
The Brookings-FT Tracking Indexes for the Global Economic Recovery, or Tiger, reveal that sentiment is currently the weakest point in the global economy.
The upcoming US presidential election on November 5 and various geopolitical conflicts, such as those in the Middle East and Ukraine, are contributing to this pessimistic sentiment.
“There is a prevailing sense of gloom and uncertainty,” said Eswar Prasad, a senior fellow at the Brookings Institution. “Confidence indicators are performing poorly in both well-performing and struggling countries.”
These findings come as policymakers and economists prepare to convene for the IMF and World Bank’s annual meetings in Washington in the upcoming week.
Prior to the meetings, Kristalina Georgieva, the IMF’s managing director, cautioned that the fund’s forecasts indicate a challenging future characterized by low growth and high debt.
She emphasized the importance of governments addressing their deteriorating public finances, while also warning that the tough economic conditions could hinder efforts to reduce debt levels.
The IMF is set to update its global growth projections next week, following its July report which projected a global expansion of 3.2% in 2024 and 3.3% in 2025. Georgieva highlighted that despite moving past the recent inflationary shock, there would be lasting effects on household incomes due to the surge in prices.
Although indicators of real economic activity have improved in the US and China, confidence has taken a hit and remains below long-term levels, according to the bi-annual index. Japan and Germany have also experienced a decline in confidence.
Prasad pointed out that the fragile confidence indicators reflect concerns about the sustainability of the recovery, as well as political uncertainty and ongoing geopolitical instability in various regions.
Despite the strong performance of the US and Indian economies, confidence levels are shaky. On the other hand, confidence indicators for Germany and other major economies are less optimistic.
Germany, in particular, is facing its first two-year recession since the early 2000s after revising down its 2024 growth forecast on October 9.
While some confidence levels in the UK have risen, business leaders are eagerly awaiting clarity on economic policies from Chancellor Rachel Reeves in her upcoming budget announcement on October 30.
Data visualisation by Keith Fray