Good morning. Peter Vanham here, filling in for Alan.
Spring is in the air, and in Washington that means the IMF/World Bank Spring meetings are underway. For an overview of the accompanying IMF global growth forecasts, read Will Daniel’s piece in Fortune today. In essence, the IMF is worried that rate rises will trigger “fragility” and push the world economy towards a recession.
What stood out to me, however, was the return of another, longer-term shift: the center of gravity of global growth tilting back to the East, and the “West” no longer being able to decisively tip the scale on geo-economic matters—increasingly to its own detriment. Indeed:
- China (+5.2%) and India (+5.9%) will by far be the fastest growing major economies this year, with the U.S. (+1.6%) and the Euro area (+0.8%) grinding to a halt, and Germany (-0.1%) slipping into a recession
- Russia (+0.7%) is expected to return to growth this year (!) despite Western sanctions and the departure of many U.S. and European companies
- Many developing economies (excluding China) are seeing their (dollar) debt servicing levels climb steeply, due to rising interest rates and falling exchange rates
These forecasts are making many representatives present in Washington question the soundness of the decisions central banks and governments in the U.S. and Europe took last year.
In developing economies, for example, rising interest rates are hurting a lot. “They are the wrong policy tool at this moment in time,” Richard Kozul-Wright, director of globalization and development strategies at UNCTAD, a UN agency close to the views of developing countries, told me from D.C. Kozul-Wright quoted economist Robert Solow’s criticism of a similar Fed policy in the 1960s: “To try effectively to wipe out hard-core inflation by squeezing the economy is […] burning down the house to roast the pig.”
Meanwhile, companies and consumers in Germany—the only European country alongside the U.K. projected to experience a recession—may start wondering what the point of Western sanctions on Russia has been. In 2022, Russia successfully rerouted its oil and gas exports to China and India, and in doing so, proved Western governments and IMF forecasters wrong. Its recession last year was much milder than expected, and a large part of the costs are borne by European consumers and companies.
The laughing third in all of this may be China. As the U.S. and—to a lesser extent—Europe are decoupling from Russia and China, the world’s largest emerging market is finally experiencing its post-COVID “spring.”
More news below.
Peter Vanham
@petervanham
peter.vanham@fortune.com
