The war of central banks against inflation is not over, and it would be wrong to let ourselves be lulled by the first signs of victory, warns fund manager Amundi.
The rate of increase in the cost of living has slowed in recent months, both in Canada and the United States, and more and more analysts are now wondering when the last increase in central bank interest rates will come. Several are even already talking about possible first cuts in a year, which would restore a little energy to the economy after a start to the year that promises to be difficult.
However, when asked which economic or financial file remains the most important in these eyes, Pierre Blanchet repeats that it remains inflation and the tightening of monetary policies by central banks intended to counter it. “Inflation is still at an exceptional level, recalled Tuesday in a telephone interview with the To have to the head of economic intelligence at Amundi, one of the 10 largest fund managers in the world. In Europe, inflation is still on the rise, and not only because of the situation in energy, but also in other spheres of the economy, such as services. »
Possible jolt
“It is true that inflation has started to fall in North America,” he continues. But there will still be a long way to go between current levels and the 2% target, and we are not immune to a jolt. […] We have already known, in the 1970s, identical phases, where the Federal Reserve also thought it had curbed inflation, but where it had risen again just as quickly. You have to be careful. »
At Amundi, the major central banks are thus expected to raise their interest rates by at least another percentage point, if not more, before stopping. This would bring these rates to 5.25% in the United States (compared to between 3.75% and 4% today), to 2.5% in Europe (compared to 1.5%) and to 4.75% in the United Kingdom. United (against 3%). Unlike the others, the Bank of Canada appears to be much closer to the goal, with only a final increase of a quarter of a percentage point in its bank rate, currently at 3.75%.
Governments will also have to be careful not to undo what central banks are trying to do through reckless spending or tax cuts, warns Pierre Blanchet. “The UK recently reminded us of the consequences of poor coordination between monetary policy and fiscal policy. »
Coming slowdown
A subsidiary of the French group Crédit Agricole, Amundi is Europe’s leading asset manager, with nearly 100 million clients and more than 1,800 billion euros in assets under management last year. While growing, its presence in Canada remains more modest, with $10 billion in assets.
This coordinated fight by central banks against inflation will weigh so much on household consumption and business investment that growth in the United States will be virtually nil next year and the European economy will show a slight decline. The economic contraction has already begun in Europe, and should continue during the first half of 2023, says Pierre Blanchet.
“The slowdown will not be so violent. There is no reason to be afraid. But the recovery will also be soft, because monetary conditions are not going to loosen much in 2024 and the energy crisis in Europe will continue to be felt. »
Green transition
The escalation of tension between Russia and Europe in the energy field since the invasion of Ukraine has raised fears, for a time, that certain sectors of the European economy will be forced to shut down this winter due to a lack of gas. Russian natural. The slowdown in economic activity in China, the favorable weather conditions and the efforts made by Europeans to replenish their gas reserves should make it possible to avoid the worst this year, rejoices Pierre Blanchet. But all this will have to be done again next winter, in 2024.
“Unfortunately, or fortunately, the energy crisis that Europe is going through also has the effect of accelerating the transition [verte]. It even makes it mandatory, and in a very broad way, regardless of the countries and their energy mixes. »
But for the economy not to slump too much next year, we will also need a boost from China, which should have seen its growth slow to just 3.2% this year, according to the International Monetary Fund. “It is supposed to be the main contributor to growth in 2023. If it fails to return to a growth rate of 4.5% to 5% in 2023, the world economy will be in much worse shape. »