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IMF: Global growth “limping not sprinting” - Industry roundup: 11 October

IMF: Global growth “limping not sprinting”

The IMF sees global growth “limping not sprinting” ahead this year, Pierre-Olivier Gourinchas, head of the Fund’s Research Department, said at the World Economic Outlook (WEO) launch in Marrakech, Morocco.

“The global economy is limping along, not sprinting. Under our baseline forecasts, growth will slow from 3.5% last year to 3% this year and 2.9% next year, a 0.1 percentage point downgrade for 2024. This remains well below historical averages,” said the IMF’s Chief Economist.

The report found that central bank tightening seems to be bearing fruit, but the world is entering a period of divergence on monetary policy. The US economy is especially a bright spot, Gourinchas said.

“The news on inflation is encouraging, but we're not quite there yet. Headline inflation continues to decelerate. Core inflation, excluding food and energy prices, is also projected to decline, but more gradually. However, all in all, most countries are not expected to return to inflation target until 2025. Taken together, our projections are increasingly consistent with a soft-landing scenario, bringing inflation down without a major downturn in activity. This is especially true in the US, where the unemployment rate is now expected to increase only mildly between now and 2025. Labour markets in advanced economies, while still tight, are softening without signs of a wage price spiral further,” Gourinchas said the forecast found.

Sri Lanka particularly has done a good job of taming inflation in partnership with the IMF’s help, bringing it down from 70% a year ago to just 2% now, said Deputy head of Research Department, Daniel Leigh.

“The people of Sri Lanka have shown remarkable resilience in the face of enormous challenges. Sri Lanka has made commendable progress in implementing difficult but much-needed reforms, and these reforms are already bearing fruit as the economy is showing tentative signs of stabilisation,” Leigh said.

But news of the Hamas attack on Israeli civilians over the weekend has sparked fears of broader instability in the Middle East. The chief immediate worry for global growth is a potential spike in energy costs Gourinchas said, explaining that IMF research suggests that if there is something like a 10% increase in oil prices, this would weigh down on global output by about 0.15% in the following year and would increase global inflation by about 0.4 percentage point.

“We see spikes in energy prices and oil prices. We've seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” explained French economist Gourinchas.


EBA notes benefits from rising interest rates stabilising

The European Banking Authority (EBA) has published its Q2 2023 quarterly Risk Dashboard (RDB). Banks’ profitability and capital ratios increased further, while macroeconomic uncertainty weighed on loan growth. Macroeconomic and geopolitical uncertainty remains high. The European Commission revised its economic outlook downward in the summer. China's less positive growth outlook creates additional risks for the European economy. Newly introduced banking taxes have increased market uncertainty.

The European Union and European Economic Area (EU/EEA) banks maintained robust capitalisation levels in the second quarter. The average common equity tier 1 (CET1) ratio increased by another 20 basis points on a fully loaded basis, reaching a historical high of 15.9%. The liquidity coverage ratio (LCR) normalised further, from 162.8% to 159.9% QoQ, driven by the targeted longer-term refinancing operations (TLTRO) III repayment in June. The net stable funding ratio (NSFR) increased to 126.5% (125.9% in Q1).

Banks’ consideration of sustainability aspects is also reflected in their funding. The share of green bonds increased for non-preferred senior bonds and remained stable for covered and preferred senior debt. Slower economic growth also weighs on loan growth. Outstanding loans towards households and non-financial corporates were flat on a quarterly basis. Asset quality remains robust on average, although a few countries reported an increase in non-performing loans (NPL) volumes and data indicates that for some portfolios, asset quality could deteriorate faster going forward.

Return on Equity (RoE) increased further in the second quarter to 10.8% from 10.2% in Q1, almost solely driven by the increase in net interest income. Banks’ net interest margin (NIM) increased further, yet the quarterly growth rate was slower than in previous quarters. Additionally, operational risks remain a key concern. Key risk drivers include ICT and cyber-related risks. On anti-money laundering (AML) related shortcomings, the EBA’s EuReCa data shows that competent authorities reported 143 serious deficiencies in 57 institutions between June and August.


UK business cost pressures ease but output falls in Q3

The latest NatWest Regional PMI survey indicated a near-universal decline in business activity across the UK in September, with only London earning a score above 50, signalling growth. Labour market trends also worsened as employment fell in all areas except Northern Ireland and Scotland. More positively, there was a broad-based easing of cost pressures faced by businesses.

Business activity fell across all but one of the 12 monitored UK regions and nations at the end of the third quarter, the exception being London. Furthermore, output in the capital increased at an accelerated rate (index at 52.4). The North East (43.7) recorded the sharpest drop in business, its quickest for more than a year, followed by neighbouring Yorkshire & Humber (44.5).

Most areas saw a decrease in inflows of new business in September, in a sign of demand for goods and services being under pressure. The fastest rate of decline was in the North East, where it was the quickest for almost a year, followed by Yorkshire & Humber and the North West, respectively. The only noticeable increase in new work was in London, while the West Midlands saw broadly no change.

Business cost pressures eased in September, with input prices increasing more slowly in all areas. The weakest rate of cost inflation was recorded in the West Midlands, which also saw the most marked deceleration from the month before. Firms in the South West faced the steepest rise in operating expenses, closely followed by those in the East Midlands and East of England.

London led a broad-based rise in rise in output prices in September. Average charges for goods and services rose markedly across the capital and at a slightly faster rate than the month before. Output price inflation also quickened in Scotland and the East Midlands, but slowed everywhere else. The North West recorded the softest rise in charges, the weakest for three years.

As was the case throughout the third quarter, firms in the West Midlands were the most optimistic about future activity in September. Next in the rankings was the South East, one of seven regions where confidence improved. The most marked month-on-month increase in sentiment was in the East of England. Business expectations were lowest in the North East.  


SAP unveils genAI tools for spend management

SAP has announced business AI and user experience innovations in its spend management and business network solutions designed to help customers control costs, mitigate risk and increase productivity. 

The newly released SAP Ariba Category Management solution will include generative AI to help procurement professionals build category strategies faster. This capability aims to help jump-start the market analysis process and offer a suggested category strategy for procurement professionals to refine and execute, saving category managers time and increasing strategy validity. General availability is planned by the end of 2023. 

SAP will also embed Joule, its new generative AI copilot, throughout its cloud solutions, with availability in its spend management software planned for 2024. SAP is also developing additional use cases in collaboration with customers, with availability planned for the first half of 2024. 


J.P. Morgan Asset Management in Brazil connects to Calastone

Calastone has announced that J.P. Morgan Asset Management in Brazil is now connected to its network for investment funds processing, enabling Brazilian institutional investors to access an extensive range of offshore funds markets.

As Brazilian asset managers start to focus on the implementation of the CVM 175 regulation, which opens the international market for Brazilian retail investors, Calastone enables direct connectivity to the offshore market without forcing any changes in processes or existing custody relationships, which it says minimises any potential cost, additional fees, or other impact on investors.

“CVM 175 presents an opportunity for Brazilian investors to diversify their investments further and this connectivity allows J.P. Morgan Asset Management in Brazil to prepare for the future now, as Brazil further establishes itself as a key global player,” said William Brennan, Director of New Markets at Calastone.


UnionPay and TripLink launch virtual commercial card in Singapore

Global payment network UnionPay has partnered with financial technology company TripLink International to introduce the UnionPay Virtual Commercial Card in Singapore. This initiative marks UnionPay International’s (UPI) first B2B virtual card designed to address the cross-border payment needs of businesses.

The card aims to provide a convenient payment solution for businesses, particularly in the airlines and hotel industries, a seamless, cost-effective and secure method for conducting real-time cross-border transactions. A UnionPay statement says that, by using the card, businesses can significantly reduce the time required for crediting or transferring funds and minimise any administrative fees.

UnionPay’s secure and encrypted risk control systems allow TripLink’s customers to pay their merchants and partners via the card, which is designed to make the transaction safe, secure and efficient. 

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