S&P revises global economic forecast following US Fed decision

In Europe, despite a general alignment with US monetary adjustments, central banks like the European Central Bank (ECB) and the Riksbank are gearing up for rate cuts as early as June and May respectively, diverging slightly from the US approach. The Fed's recent policy decisions have had a mild impact on European currencies and financial conditions, with European currencies experiencing slight depreciation and a modest rise in bond yields compared to US Treasuries. This phenomenon is partly due to the Swiss National Bank’s (SNB) earlier rate cuts in March and anticipated cuts by other central banks in the region.

The Asia-Pacific region is bracing for a slowdown in the pace of policy rate reductions, as central banks there recalibrate their strategies in response to the US developments. The sensitivity of the region to capital flows and exchange rates, influenced by interest differentials with the US, prompts this cautious approach. In particular, Japan has postponed its next Bank of Japan rate increase to 2024 from 2025, reflecting the nuanced adjustments across the region, according to the recent global economic update by S&P Global.

Emerging markets outside Asia are also adjusting to the delayed US rate cuts, with monetary policy normalisation expected to take longer. Central banks in countries like Brazil, Chile, and Peru are predicted to slow their rate-cutting measures in the upcoming months. Meanwhile, others such as Mexico may pause their monetary easing before resuming later this year, and nations like South Africa might delay their rate reductions even further.

This comprehensive adjustment across global economies reflects a dynamic response to the US Federal Reserve's monetary policy shifts. The feedback effects through exchange rates and financial conditions demonstrate the interconnected nature of global financial markets. S&P Global continues to monitor these developments closely, reaffirming its current scenario but also noting increased risks to European long-term yields, potentially revising upwards by 30 to 40 basis points over 2025.

These recent revisions have not significantly shifted the forecasts for other essential economic variables from the projections set during the March 2024 Credit Conditions Committee.

Fibre2Fashion News Desk (DP)