ICAEW chart of the week: IMF World Economic Outlook Update

My chart for ICAEW this week illustrates how countries rank in the IMF’s latest forecasts for economic growth over 2024 and 2025.

IMF World Economic Outlook Update
ICAEW chart of the week

(Horizontal bar chart)

Legend:

Emerging markets and developing economies (green)
World (purple)
Advanced economies (blue)
UK (red)

Projected annualised real GDP growth 2024 and 2025

Bars in green except where noted.

India: +6.5%
Philippines: +6.0%
Indonesia: +5.0%
Kazakhstan: +4.4%
China: +4.3%
Malaysia: +4.3%
Saudi Arabia: +4.3%
Egypt: +3.8%
Iran: +3.4%
Thailand: +3.2%
Türkiye: +3.1%
World Output: +3.1% (purple)
Nigeria: +3.0%
Poland: +3.0%
Pakistan: +2.7%
World Growth: +2.6% (purple)
South Korea: +2.3% (blue)
Mexico: +2.1%
United States: +1.9% (blue)
Canada: +1.8% (blue)
Russia: +1.8%
Brazil: +1.8%
Spain: +1.8% (blue)
Australia: +1.7% (blue)
France: +1.3% (blue)
South Africa: +1.1%
United Kingdom: +1.1% (red)
Germany: +1.0% (blue)
Argentina: +1.0%
Netherlands: +1.0% (blue)
Italy: +0.9% (blue)
Japan: +0.8% (blue)


8 Feb 2024.
Chart by Martin Wheatcroft FCA. Design by Sunday.
Source: IMF World Economic Outlook Update, 30 Jan 2024.

(c) ICAEW 2024

Each January, the International Money Fund (IMF) traditionally releases an update to its World Economic Outlook forecasts for the global economy. This year it says that it expects the global economy to grow by an average of 2.6% over the course of 2024 and 2025 at market exchange rates, or by 3.1% when using the economists-preferred method of converting currencies at purchasing power parity (PPP).

The chart shows how the 30 countries tracked by the IMF fit between emerging market and developing economies, most of which are growing faster than the global averages, and advanced economies, which tend to grow less quickly. 

The biggest drivers of the global forecast are the US, China and the EU, with both the US and China expected by the IMF to grow less strongly on average over the next two years than in 2023. This contrasts with an improvement over 2023 (which involved a shrinking economy in Germany) by the advanced national economies in the EU over the next two years – apart from Spain, which is expected to fall back from a strong recovery in 2023. 

Growth in emerging and developing countries is expected to average 4.1% over the two years, led by India (now the world’s fifth largest national economy after the US, China, Germany and Japan), followed by the Philippines, Indonesia, Kazakhstan growing faster than China, followed by Malaysia, Saudi Arabia, Egypt, Iran, Thailand and Türkiye. 

Nigeria, Poland and Pakistan are expected to grow slightly less than world economic output, followed by Mexico. 

Russia, Brazil and South Africa are expected to grow less strongly, while Argentina is expected to grow the least, with a forecast contraction in 2024 expected to be followed by a strong recovery in 2025.

The strongest-growing of the advanced economies in the IMF analysis continues to be South Korea, followed by the US, Canada, Spain, Australia, France, the UK, Germany, the Netherlands and Italy, with Japan expected to have the lowest average growth. Overall, the advanced economies are expected to grow by an average of 1.6% over the next two years.

For the UK, forecast average growth of 1.0% over the next two years is expected to be faster than the 0.5% estimated for 2023, but at 0.6% in 2024 and 1.6% in 2025 we may not feel that much better off in the current year.

Of course, forecasts are forecasts, which means they are almost certainly wrong. However, they do provide some insight into the state of the world economy and how it appears to be recovering the pandemic.

For further information, read the IMF World Economic Outlook Update.

More data

Not shown in the chart are the estimate for 2023 and the breakdown in 2024 and 2025, so for those who are interested, the forecast percentage growth numbers are as follows:

Emerging market and developing countries:

CountryAverage over
2024 and 2025
2023
Estimate
2024
Forecast
2025
Forecast
India6.5%6.7%6.5%6.5%
Philippines6.0%5.3%6.0%6.1%
Indonesia5.0%5.0%5.0%5.0%
Kazakhstan4.4%4.8%3.1%5.7%
China4.3%5.2%4.6%4.1%
Malaysia4.3%4.0%4.3%4.4%
Saudi Arabia4.1%-1.1%2.7%5.5%
Egypt3.8%3.8%3.0%4.7%
Iran3.4%5.4%3.7%3.2%
Thailand3.2%2.5%4.4%2.0%
Türkiye3.1%4.0%3.1%3.2%
Nigeria3.0%2.8%3.0%3.1%
Poland3.0%0.6%2.8%3.2%
Pakistan2.7%-0.2%2.0%3.5%
Mexico2.1%3.4%2.7%1.5%
Russia1.8%3.0%2.6%1.1%
Brazil1.8%3.0%2.6%1.1%
South Africa1.1%0.6%1.0%1.3%
Argentina1.0%-1.1%-2.8%5.0%

Advanced economies (including the UK): 

CountryAverage over
2024 and 2025
2023
Estimate
2024
Forecast
2025
Forecast
South Korea2.3%1.4%2.3%2.3%
USA1.9%2.5%2.1%1.7%
Canada1.8%1.1%1.4%2.3%
Spain1.8%1.1%1.4%2.3%
Australia1.7%1.8%1.4%2.1%
France1.3%0.8%1.0%1.7%
UK1.1%0.5%0.6%1.6%
Germany1.0%-0.3%0.5%1.6%
Netherlands1.0%0.2%0.7%1.3%
Italy0.9%0.7%0.7%1.1%
Japan0.8%1.9%0.9%0.8%

This chart was originally published by ICAEW.

ICAEW chart of the week: Inflation around the world

This week we look at how inflation is racing upwards across the world, with the UK reporting in April one of the highest rates of increase among developed countries.

Bar chart showing inflation rates by G20 country: Russia 17.8%, Nigeria 16.8%, Poland 12.4%, Brazil 12.1%, Netherlands 9.6%, UK 9.0%, Spain 8.3%, USA 8.3%, India 7.8%, Mexico 7.7%, German 7.4%, Canada 6.8%, Italy 6.0%, South Africa 5.9%, France 4.8%, South Korea 4.8%, Indonesia 3.5%, Switzerland 2.5%, Japan 2.4%, Saudia Arabia 2.3%, China 2.1%.

Inflation has increased rapidly over the last year as the world has emerged from the pandemic. A recovery in demand combined with constraints in supply and transportation has driven prices, with myriad factors at play. These include the effects of lockdowns in China (the world’s largest supplier of goods), the devastation caused by the Russian invasion in Ukraine (a major food exporter to Europe, the Middle East and Africa), and the economic sanctions imposed on Russia (one of the world’s largest suppliers of oil and gas).

As the chart shows, the UK currently has – at 9% – the highest reported rate of consumer price inflation in the G7, as measured by the annual change in the consumer prices index (CPI) between April 2021 and April 2022. This compares with 8.3% in the USA, 7.4% in Germany, 6.8% in Canada, 6.0% in Italy, 4.8% in France and 2.4% in Japan. 

The UK’s relatively higher rate partly reflects the big jump in energy prices in April from the rise in the domestic energy price cap, which contrasts with France, for example, where domestic energy price rises have been much lower (thanks in part to state subsidies). The UK inflation rate also hasn’t been helped by falls in the value of sterling, making imported goods and food more expensive.

Other countries shown in the chart include Russia at 17.8%, Nigeria at 16.8%, Poland at 12.4%, Brazil at 12.1%, Netherlands at 9.6%, Spain at 8.3%, India at 7.8%, Mexico at 7.7%, South Africa 5.9%, South Korea at 4.8%, Indonesia at 3.5%, Switzerland at 2.5%, Saudi Arabia at 2.3% and China at 2.1%. For most countries, the rate of inflation is substantially higher than it has been for many years, reflecting just how major a change there has been in a global economy that had become accustomed to relatively stable prices in recent years. 

This is not the case for every country, and the chart excludes three hyperinflationary countries that already had problems with inflation even before the pandemic, led by Venezuela with an inflation rate of 222.3% in April, Turkey with a rate of 70%, and Argentina at 58%.

Policymakers have been alarmed at the prospect of an inflationary cycle as higher prices start to drive higher wages, which in turn will drive even higher prices. For central banks that has meant increasing interest rates to try and dampen demand, while finance ministries have been looking to see how they can protect households from the effect of rising prices, particular on energy, whether that be by intervention to constrain prices, through temporary tax cuts, or through direct or indirect financial support to struggling households.

Here in the UK, both the Bank of England and HM Treasury have been calling for restraint in wage settlements as they seek to head off a further ramp-up in inflation. They hope that inflation will start to moderate later in the year as price rises in the last six months start to drop out of the year-on-year comparison and supply constraints start to ease, for example as oil and gas production is ramped up in the USA, the Middle East and elsewhere to replace Russia as an energy supplier, and as China emerges from its lockdowns.

Despite that, prices are likely to rise further, especially in October when the energy price cap is expected to increase by 40%, following a 54% rise in April. This is likely to force many to make difficult choices as household budgets come under increasing strain.

After all, inflation is much more than the rate of change in an arbitrary index; it has an impact in the real world of diminishing spending power and in eroding the value of savings. 

This chart was originally published by ICAEW.

ICAEW chart of the week: Europe’s gas supply

Our chart this week looks at Europe’s natural gas supply and its current reliance on Russian gas to keep homes warm, businesses operating and gas-fired power plants generating.

Two-column chart on Europe's supply of natural gas in billion cubic metres (bcm) in 2020.

Gas supply of 494bn, comprising Europe production of 213bcm, imports from Russia 158bcm and other imports of 123bcm.

Gas demand: Germany 94bcm, UK 80bcm, Italy 71bcm, Netherlands 44bcm, France 40bcm, other Western Europe 93bcm, Eastern Europe 72bcm.

Europe’s gas supply in 2020 amounted to 494 billion cubic metres (bcm) of natural gas, comprising 213bcm (43%) of domestic production (principally from the North Sea), 158bcm (32%) imported from Russia, and 123bcm (25%) imported from other sources.

For this purpose, Europe excludes Russia, Belarus and Ukraine and these numbers also don’t take account of movements into and out of gas storage. For reference, 1bc) = 38.2 petajoules (PJ) = 10.6 terawatt hours (TWh) = 36.2trn British Thermal Units (BTU).

The biggest users of gas are Germany, the UK, Italy, Netherlands and France, which consumed approximately 94bcm, 80bcm, 71bcm, 44bcm and 40bcm respectively, together adding up to 329bcm or 67% of the total. Other western European countries consumed 93bcm of gas in 2020, including Spain (32bcm), Belgium (18bcm), Austria (9bcm), Portugal (6bcm), Greece (6bcm), Ireland (5bcm), Norway (5bcm), Switzerland (4bcm) and Denmark (3bcm).

Eastern European countries consumed 72bcm, including Poland (22bcm), Romania (12bcm), Hungary (11bcm), Czechia (9bcm), Slovakia (5bcm) and Bulgaria (3bcm). The Baltic states together consumed 4bcm.

Domestic production of 213bcm includes 116bcm from Norway, 41bcm from the UK and 24bcm from the Netherlands, almost all of which was supplied through a network of pipelines starting under the North Sea. The next largest producer was Romania with 9bcm.

The majority of Russia’s supply (around 140bcm) was sent through pipelines into eastern Europe, Germany and Italy, and from there onto western European countries. The balance of around 18bcm was supplied by tankers filled with liquefied natural gas (LNG).

Some of the remaining imports were also supplied by pipelines, in particular from Algeria, Libya and Turkey, but the majority was purchased as LNG on the world market from suppliers including the USA, Qatar, Kuwait, UAE, Nigeria and Trinidad & Tobago among others.

Removing Russia from the gas supply chain will not be easy, especially as the largest consumer of gas – Germany – has no LNG terminals and currently relies on pipelines for almost all of its gas supply.

Despite that, European leaders are working on plans to do so, with the International Energy Agency (IEA) recently publishing a 10-point plan to reduce Europe’s reliance on Russian gas.

This chart was originally published by ICAEW.

ICAEW chart of the week: Government borrowing rates

Our first chart of 2022 highlights how the cost of government borrowing remains extremely low for most of the 21 largest economies in the world, despite the huge expansion in public debt driven by the pandemic.

Government 10-year bond yields: Germany -0.13%, Switzerland -0.07%, Netherlands 0.00%, Japan 0.09%, France 0.23%, Spain 0.60%, UK 1.08%, Italy 1.23%, Canada 1.59%, USA 1.65%, Australia 1.79%, South Korea 2.38%, China 2.82%, Poland 3.87%, Indonesia 6.38%, India 6.51%, Mexico 8.03%, Russia 8.38%, Brazil 10.73%, Turkey 24.21%.

Our chart of the week illustrates how borrowing costs are still at historically low rates for most of the 21 largest national economies in the world, with negative yields on 10-year government bonds on 5 January 2022 for Germany (-0.13%) and Switzerland (-0.07%), approximately zero for the Netherlands, and yields of sub-2.5% for Japan (0.09%), France (0.23%), Spain (0.60%), the UK (1.08%), Italy (1.23%), Canada (1.59%), the USA (1.65%), Australia (1.79%) and South Korea (2.38%).

This is despite the trillions added to public debt burdens across the world over the past couple of years as a consequence of the pandemic, including the $5trn added to US government debt since March 2020 (up from $17.6trn to $22.6trn owed to external parties) and the more than £500bn borrowed by the UK government (public sector net debt up from £1.8trn to £2.3trn) for example.

Yields in developing economies are higher, although China (2.82%) and Poland (3.87%) can borrow at much lower rates than Indonesia (6.38%), India (6.51%), Mexico (8.03%), Russia (8.37%) and Brazil (10.73%). The outlier is Turkey (24.21%), which is experiencing some difficult economic conditions at the moment. Data was not available for Saudi Arabia, the 19th or 20th largest economy in the world, which has net cash reserves.

With inflation higher than it has been for several years, real borrowing rates are negative for most developed countries, meaning that in theory it would make sense for most countries to continue to borrow as much as they can while funding is so cheap. However, in practice fiscal discipline appears to be reasserting itself, with Germany, for example, planning on returning to a fully balanced budget by the start of next year and the UK targeting a current budget surplus within three years.

For many policymakers, the concern is not so much about how easy it is to borrow today, but the prospect of higher interest rates multiplied by much higher levels of debt eating into spending budgets just as they are looking to invest to grow their economies over the rest of the decade. Despite that, with the pandemic still raging and an emerging cost of living crisis, there may well be a temptation to borrow ‘just one more time’ to support struggling households over what is likely to be a difficult start to 2022.

This chart was originally published by ICAEW.

ICAEW chart of the week: global military spending

19 March 2021: The UK’s Integrated Review is the inspiration for this week’s chart, illustrating the 20 countries around the world that spend the most on their militaries.

Chart showing global military spending in 2019 led by USA (£526bn) and China (£200bn) followed by 18 other countries - see text below the chart for details.

The UK Government launched its Integrated Review of Security, Defence, Development and Foreign Policy on 16 March 2021, setting out a vision for the UK’s place in the world following its departure from the European Union and in the context of increasing international tensions and emerging security threats.

At the core of the Integrated Review is security and defence, and ICAEW’s chart of the week illustrates one aspect of that by looking at military spending around the world. 

The chart shows spending by the top 20 countries, which together comprise in the order of £1.2tn of estimated total military spending of around £1.4tn to £1.5tn globally in 2019 – an almost textbook example of the 80:20 rule in action.

More than a third of the total spend is incurred by just one country – the USA – which spent in the order of £526bn in 2019 converted at current exchange rates. The next biggest were China and India at £200bn and £50bn respectively, although differences in purchasing power mean that they can afford many more soldiers, sailors and aircrew for the same amount of money. This is followed by Saudi Arabia (£45bn), Russia (£41bn), France (£38bn), the UK (£38bn), Germany (£38bn), Japan (£34bn), South Korea (£33bn), Australia (£21bn), Italy (£20bn), Canada (£17bn), Israel (£16bn), Brazil (£14bn), Spain (£13bn), Turkey (£11bn), the Netherlands (£9bn), Iran (£9bn) and Poland (£9bn).

Exchange rates affect the relative orders of many countries in the list, for example between Russia, France, the UK and Germany which can move up or down according to movements in their currencies, while there are a number of caveats over the estimates used given the different structures of armed forces around the world and a lack of transparency in what is included or excluded in defence budgets in many cases.

In addition, the use of in-year military spending does not necessarily translate directly into military strength. Military capabilities built up over many years or in some cases (such as the UK) over many centuries need to be taken into account, as do differing levels of technological development and spending on intelligence services, counter-terrorism and other aspects of security. Despite these various caveats, estimated military spending still provides a useful proxy in understanding the global security landscape and in particular highlights the UK’s position as a major second-tier military power – in the top 10 countries around the world.

Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy sets out some ambitious objectives for security and defence, which it summarises as follows: “Our diplomatic service, armed forces and security and intelligence agencies will be the most innovative and effective for their size in the world, able to keep our citizens safe at home and support our allies and partners globally. They will be characterised by agility, speed of action and digital integration – with a greater emphasis on engaging, training and assisting others. We will remain a nuclear-armed power with global reach and integrated military capabilities across all five operational domains. We will have a dynamic space programme and will be one of the world’s leading democratic cyber powers. Our diplomacy will be underwritten by the credibility of our deterrent and our ability to project power.”

The estimates of military spending used in the chart were taken from the Stockholm International Peace Research Institute (SIPRI)’s Military Expenditure Database, updated to current exchange rates.

This chart was originally published by ICAEW.

ICAEW chart of the week: Government bond yields

11 December 2020: Ultra-low or negative yields provide governments with an opportunity to borrow extremely cheaply, but what will happen if and when interest rates rise?

Government 10-year bond yields

Germany -0.61%, Switzerland -0.59%, Netherlands -0.53%, France -0.36%, Portugal -0.02%, Japan +0.01%, Spain +0.02%, UK +0.26%, Italy +0.58%, Greece +0.60%, Canada +0.76%, New Zealand +0.91%, USA +0.95%, Australia +1.02%

On 9 December, the benchmark ten-year government bond yield for major western economies ranged from -0.61% for investors in German Bunds through to 0.95% for US Treasury Bonds and 1.02% for Australia Government Bonds, as illustrated in the #icaewchartoftheweek.

One of the more astonishing developments of the last decade or so has been the arrival of an era of ultra-low or negative interest rates, even as governments have borrowed massive sums of money to finance their activities. This is not only a consequence of weak economic conditions and the slowing of productivity-led growth, but it has also been driven by the monetary policy actions of central banks through quantitative easing operations that have driven down yields by buying long-term fixed interest rate government bonds in exchange for short-term variable rate central bank deposits.

For bond investors this has been a wild ride, with the value of existing bonds sky-rocketing as central banks have come calling to buy a proportion of their holdings, crystallising their gains. The downside is the extremely low yields available to debt investors on fresh purchases of government bonds, which in some cases involve paying governments for the privilege of doing so.

Yields vary according to maturity, with yields on UK gilts ranging from -0.08% on two-year gilts through to 0.26% for 10-year gilts (as shown in the chart) up to 0.81% on 30-year gilts. In practice, the UK issues debt with an average maturity between 15 and 20 years, so the current average cost of its financing is higher than that shown in the chart at between 0.48% and 0.77% being the yields on 15-year and 20-year gilts respectively. This has the benefit of locking in low interest rates for longer, in contrast with most of the other countries shown that tend to issue debt with an average maturity of less than ten years.

Quantitative easing complicates the picture, as by repurchasing a significant proportion of government debt and swapping it for central bank deposits, central banks have reversed the security of fixed interest rates locked in to maturity with a variable rate exposure that will hit the interest line immediately if rates change. 

In theory, this should not be a problem, as higher interest rates are most likely to accompany stronger economic growth and hence higher tax revenues with which to pay the resultant higher debt interest bills, but in practice treasury ministers are not so sanguine. In leveraging public balance sheets to finance their responses to COVID-19 – on top of the legacy of debt from the financial crisis – governments have significantly increased their exposure to movements in interest rates, just as other fiscal challenges are growing more pressing.

Expect to hear a lot more over the coming decade about the resilience of public finances as governments seek to reduce gearing and reduce their vulnerability to the next unexpected crisis, whenever that may occur.

This chart was originally published on the ICAEW website.