The International Monetary Fund (IMF) has warned that global uncertainty has risen to exceptionally high levels, with episodes of political fragmentation and turbulence likely to hurt economic growth prospects this year.
Ahead of the release of its World Economic Outlook today, the IMF yesterday published an analysis of its quarterly World Uncertainty Index (WUI), which tracks uncertainty in 143 countries across the globe.
The IMF macro-economists said the level of uncertainty was higher in developing countries, but was more synchronised across advanced economies with their tighter trade and financial linkages.
It said the index had spiked in the past around major events, such as the Gulf War, the Euro debt crisis, the Brexit vote and the Covid pandemic.
Several events in recent years, including the global financial crisis, political polarisation and trade conflicts, and the pandemic, have raised concerns over rising economic uncertainty.
“Uncertainty jumped following the United Kingdom’s unexpected vote to leave the European Union – and soared even further after the surprise outcome of the 2016 presidential election in the United States. This was followed by US trade tensions with China, which caused major uncertainty for the world,” it said.
“Another big spike followed in early 2020, with the onset of the coronavirus pandemic, followed less than two years later by another shock from Russia’s invasion of Ukraine and renewed trade uncertainty associated with the risk of geo-economic fragmentation.”
The IMF created indexes to measure uncertainty for specific categories that have significantly contributed to the increase in the global WUI in recent years.
These include spillovers of uncertainty from the US and other systemic economies; trade uncertainty; and, uncertainty associated with pandemic events.
In spillovers, the IMF said that uncertainty in systemic economies, such as the US election, Brexit, or China-US trade tensions, had been a key source of uncertainty around the world in the past few years given the higher interconnectedness across countries.
Data also revealed that high levels of trade uncertainty have been recorded in key US trading partners, but varied significantly both across regions and income groups.
Across regions, the rise in the index has been felt the most in the Western Hemisphere, followed by Asia and the Pacific and Europe, but in contrast, trade uncertainty remained moderately low in countries with lower trade ties with the US and China, such as those in the Middle East, Central Asia and Africa.
According to the IMF, the level of global uncertainty related to Covid-19 has been unprecedented, and reached five times the size of the uncertainty associated with the 2002/03 severe acute respiratory syndrome (SARS) epidemic and about twenty times the size of uncertainty connected to the Ebola outbreak.
According to financial services firm PwC, this year started for South Africa with many uncertainties – some old, some new – and these could result in different macro-economic scenarios playing out for the country during 2023.
Investors were already becoming cautious on the back of the global economic uncertainties that were taking a toll on sentiment, such as the ongoing war in Ukraine and rising Covid-19 cases in China.
Last week, the South African Reserve Bank upped interest rates once more, but at a slower pace, citing upside risks to inflation and drastically lower domestic economic growth due to the ongoing energy crisis.
PwC senior economist Christie Viljoen said concern remained about the elevated level of price inflation, especially from a supply chain perspective, and the rand was very volatile and highly influenced by external factors.
“This year, these risks include political divisions in Washington DC and local policy developments,” Viljoen said.
“Globally, the political and economic ripple effects of decades-high inflation and increased energy costs will add to household financial stress and could stoke social discontent and political instability in many countries. This, in turn, reduces appetite for emerging market assets like the rand.”
BUSINESS REPORT