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Global growth forecasts plummet amid war in Ukraine; Brazil’s central bank raises interest rates — Macro Snapshot

RIYADH: The war in Ukraine has dented global growth forecasts by 0.5%, with Italy’s growth slipping by 1.7%.

While Brazil’s central bank raised its benchmark interest rates by 100 basis points, Morocco kept its interest rate at 1.5%. The British pound and the Japanese yen saw changes, even as Canadian equities hit a record high boosted by a rally in tech stocks.

Global Growth Forecasts

Independent economic research provider Capital Economics has lowered global growth forecast from 4% to 3.2% as the war in Ukraine continues.

Previous growth for 2022 is expected to slow from 6% to 4%. But given that the West’s aggressive response to the Russia-Ukraine crisis will further cripple Russia’s economy, disrupt global supply chains and fuel even higher inflation, global growth is expected to fall to 3.2% .

It could fall further to 3% if Western sanctions on energy trade are accompanied by secondary sanctions.

In this scenario, the main central banks of advanced economies could consider reducing their tightening plans in order to support real activity, underlines the report of Capital Economics.

Tunisia’s default risk will increase if IMF deal delayed

Tunisia is heading for default if the current deterioration in its finances continues, investment bank Morgan Stanley warned on Monday.

“In a scenario where the current rate of fiscal deterioration continues, Tunisia is likely to default on its debt,” Morgan Stanley said, adding that it would likely happen next year unless they get their way. a rapid IMF program and make major spending cuts.

This follows a similar warning from credit rating agency Fitch on Friday which lowered Tunisia’s sovereign score to “CCC” from “B-minus”. Fitch estimated that a public deficit of 8.5% of GDP this year would push Tunisia’s debt-to-gross domestic product ratio to 84%.

Brazil raises interest rates

Brazil’s central bank considered the implications of a lower rate hike of at least 75 basis points, but decided on a 100 basis point hike, which would be more timely given inflationary pressures at approaching the end of its aggressive monetary tightening cycle.

The central bank said the conflict in Ukraine added uncertainty and volatility and caused a supply shock for several commodities, especially those related to energy, before raising the benchmark rate to 11.75%.

Policymakers had last week indicated a further 100 basis point hike at the next meeting in May, hardening its stance to place interest rates in even tighter territory to limit second-round effects of the shock. current offer.

Canadian stocks hit record high

Canada’s main stock index hit a new high at the open on Tuesday, as gains in tech stocks eclipsed weakness in commodity-related stocks.

As of 9:34 a.m. ET (1334 GMT), the Toronto Stock Exchange’s S&P/TSX Composite Index, GSPTSE, was up 52.59 points, or 0.24%, at 22,061.72.

Morocco maintains interest rate

Morocco’s central bank kept its benchmark interest rate at a historic low of 1.5% on Tuesday, saying its accommodative monetary policy was needed to support the economy amid inflationary pressures stemming from the war in Ukraine. .

Driven by imported goods, inflation is expected to climb to 4.7% this year, from 1.4% in 2021, before slowing to 1.9% next year, the bank said in a statement to the outcome of the quarterly meeting of its board of directors.

The bank revised its growth forecast for 2022 down to 0.7% from 2.9% previously, citing a severe drought that reduced the outlook for this year’s grain harvest to 2.5 million tonnes.

The dollar goes up, the yen goes down

The dollar rose on Tuesday as Federal Reserve Chairman Jerome Powell put on the table the possibility of interest rate hikes of half a percentage point, while the yen fell to the psychological level of 120 as the Bank of Japan reiterated its support for an ultra-accommodative monetary policy. .

The yen JPY=EBS hit its lowest level in six years, down 1.1% at 120.81 at 12:30 GMT, after losing around 5% against the dollar this month, as higher yields Americans and the deterioration of the trade balance suck the liquidities of the third world. greater economy.

Yen crosses also suffered, with EURJPY hitting a five-month high at 133.30. The Japanese currency fell to an almost seven-year low against the Swiss franc CHFJPY.
Japan must maintain ultra-loose monetary policy lest inflation hurt the economy, Bank of Japan Governor Haruhiko Kuroda said on Tuesday – contrasting with Powell’s overnight hawkish comments.

Italy lowers its growth forecasts

Italy is expected to lower its growth outlook this year to around 3% from a previous target of 4.7%, a Treasury official said on Tuesday, amid rising energy costs and global unrest. invasion of Ukraine by Russia.

“We are going to revise the growth estimates, this year the growth will be around 3%,” Treasury Undersecretary Maria Cecilia Guerra told an Italian radio station.

The eurozone’s third-largest economy grew 6.6% last year after a record 9.0% contraction in 2020 caused by prolonged coronavirus lockdowns.

However, this year has not started well. Italian industrial production plunged 3.4% in January from the previous month, its biggest drop in more than a year, even before the headwinds generated by the war in Ukraine.

The conflict has exacerbated already exorbitant energy costs and triggered supply shortages for agriculture, prompting the ruling coalition to pressure Prime Minister Mario Draghi to approve an additional borrowing package.

The Treasury will detail its budgetary plans this month, when it publishes new growth forecasts and public finance targets in its annual Economic and Financial Document (DEF).

The pound sterling jumps

The pound strengthened to a two-week high against the euro as it continued to retrace losses following what investors perceived as a dovish interest rate hike by the Bank of England on March 17.

Attention turned to UK inflation data and UK Finance Minister Rishi Sunak’s spring statement, both due on Wednesday.

Commerzbank said the UK inflation update could move the pound significantly if the rise in prices beats expectations again.

If that were to be the case again tomorrow, BoE rate hike expectations could be fueled again, allowing the pound to rally a bit more against the euro, the Commerzbank analyst said. FX, You-Na Park-Heger.

(Contributed by Reuters)

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