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The world’s $100 trillion fiscal time bomb continues to tick

The world’s 0 trillion fiscal time bomb continues to tick

(Bloomberg) — Even before global finance chiefs fly to Washington in the next few days, they have been warned in advance by the International Monetary Fund to tighten their belts.

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Two weeks before a potentially game-changing U.S. election and barely behind the latest global inflation crisis, ministers and central bankers gathering in the nation’s capital face increasing calls to get their finances in order while they still can.

The fund, whose annual meetings begin there on Monday, has already highlighted some of the themes it plans to highlight in the coming days with a flurry of forecasts and studies on the global economy.

The IMF’s fiscal monitor will carry a warning on Wednesday that national debt is expected to reach $100 trillion this year, driven by China and the United States. In a speech on Thursday, managing director Kristalina Georgieva emphasized how much this mountain of debt is weighing on the world.

“Our forecasts point to an unforgiving combination of low growth and high debt – a difficult future,” she said. “Governments must work to reduce debt and build buffers for the next shock – which is sure to come, and perhaps sooner than we expect.”

Some finance ministers may receive further reminders before the end of the week.

Britain’s Finance Secretary Rachel Reeves has already faced a warning from the IMF pointing to the risk of a market reaction if debts do not stabilize. Tuesday marks the final release of public financial data before its Oct. 30 budget.

Britain’s tax office is taking a tougher approach to debt repayments, bankruptcy experts say, in a bid to extort 5 billion pounds ($6.5 billion) in additional revenue.

What Bloomberg Economics says:

“For all the talk of black holes, the overall effect of the Reeves budget will be looser, not stricter, policies compared to the previous government’s plans.”

—Ana Andrade and Dan Hanson, economists. For a full analysis click here

Meanwhile, Moody’s Ratings has set Friday for a possible report on France, which is currently under intense investor scrutiny. With the valuation a notch higher than major competitors, markets will be watching for any cuts to the outlook.

As for the largest borrowers of all, a look at the IMF’s already published report contains a grim warning: their public finances are everyone’s problem.

“Increased debt levels and uncertainty about fiscal policy in systemically important countries such as China and the United States may lead to significant spillover effects in the form of higher borrowing costs and debt-related risks in other economies,” the fund said.

Elsewhere next week, a rate cut in Canada and a hike in Russia are among possible central bank actions expected by economists.

Economists say falling mortgage rates are only helping to stabilize the U.S. housing market in two reports on home sales. On Wednesday, the National Association of Realtors will release data on contract closings for former homes, followed a day later by government figures on new home sales.

Economists forecast a slight increase in sales of existing and new homes in September. Resale remains impacted by limited inventory, which keeps asking prices high and affects affordability. While purchases of old homes remain near their weakest pace since 2010, builders have benefited: Sales of new homes have gradually increased over the past two years with the help of incentives.

Other U.S. data next week includes September durable goods orders and capital goods shipments, which will help economists refine their estimates of economic growth in the third quarter. The Federal Reserve also releases its Beige Book, an anecdotal analysis of the economy.

Regional Fed officials speaking next week include Jeffrey Schmid, Mary Daly and Lorie Logan.

Meanwhile, the Bank of Canada is increasingly expected to cut interest rates by 50 basis points after inflation cooled to 1.6% in September and some labor market metrics remained weak.

As in other regions, attention will largely focus on Washington; More than a dozen appearances by Governing Council members are planned in the United States.

That includes President Christine Lagarde, who will be interviewed by Bloomberg Television’s Francine Lacqua on Tuesday in Washington.

Likewise, Bank of England Governor Andrew Bailey will speak in New York on Tuesday, while Swiss National Bank President Martin Schlegel is scheduled to appear on Friday.

Among the euro area economic reports, consumer confidence on Wednesday, purchasing managers’ indices the following day and the ECB’s inflation expectations survey on Friday could be the highlights. Likewise, the German Ifo Institute will publish its closely watched business climate indicator at the end of the week.

In addition to the possible rating assessment for France, S&P could also publish reports for Belgium and Finland on Friday.

In the East, two central bank decisions are likely to attract attention, starting on Tuesday with Hungary, which could leave borrowing costs unchanged.

The Bank of Russia signaled that ongoing inflation pressures could lead to another rate hike on Friday. They raised it by 100 basis points to 19% in September, and a similar move would return the rate to the 20% level introduced in an emergency hike after President Vladimir Putin began the all-out invasion of Ukraine in February 2022 .

Finally, data from South Africa on Wednesday is likely to show that inflation slowed to 3.8% in September, raising the chances of another rate cut next month. The central bank said it now forecasts consumer price growth will remain in the lower half of its 3 percent to 6 percent target range over the next three quarters.

Lenders in China are expected to join the campaign to revive business activity with a push from the People’s Bank of China by cutting their key lending rates on Monday. The 1-year and 5-year interest rates are expected to fall by 20 basis points to 3.15% and 3.65%, respectively.

At the end of the week, data will show whether the country’s industrial profits rebounded in September after plunging more than 17% in August. The latest figures showed the economy grew at its slowest pace in six quarters during the three-month period.

Elsewhere, the region saw a range of PMIs on Thursday, including from Japan, Australia and India.

Singapore is expected to report on Wednesday that consumer inflation slowed in September. Price growth updates for this month are also expected from Hong Kong and Malaysia.

On Friday, Japan will release the Tokyo CPI for October, a key indicator that will capture company price changes at the start of the second half of the fiscal year.

South Korea will release third-quarter growth figures on Wednesday that could show economic momentum has slowed slightly.

Later this week, South Korea will publish its first trade statistics for October, while Taiwan and New Zealand will publish trade figures for September.

Many senior officials among the region’s central banks will attend the IMF meetings in Washington. Reserve Bank of Australia deputy governor Andrew Hauser will hold a fireside chat on Monday and the bank will release its annual report three days later.

Reserve Bank of New Zealand chief Adrian Orr speaks policy on the sidelines of the IMF standoff, and Uzbekistan’s central bank will decide on Thursday whether to pause for a second meeting following its interest rate cut in July.

Observers in Brazil will be looking forward to the weekly forecasts from the central bank’s so-called Focus survey, due on Monday.

Expectations for inflation, borrowing costs and debt metrics have taken a decidedly bleak turn recently amid doubts about the government’s fiscal discipline.

In Mexico, GDP proxy data is likely to be in line with the loss of momentum that is causing many economists to revise their third-quarter growth forecasts. The economy is expected to slow for the third time in 2024.

GDP proxy data for Argentina will likely show that South America’s second-largest economy is faltering and still in a recession that is likely to last until 2025.

Paraguay’s Central Bank Holds Interest Rate Setting Meeting; Policymakers have kept borrowing costs at 6% over the past six months, while inflation has been slightly above the 4% target.

As for prices, neither investors nor policymakers will be excited by the mid-month inflation reports from Brazil and Mexico, as there was initial consensus for higher headline readings.

The available data is unlikely to help worsen the prospects of the Brazilian central bank tightening policy again on November 6, while at the same time giving Banxico pause on a third straight rate cut at its November 14 meeting.

– With assistance from Laura Dhillon Kane, Brian Fowler, Robert Jameson, Monique Vanek, Vince Golle, Brendan Scott and William Horobin.

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