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

(Bloomberg) — Even before global finance chiefs fly to Washington in the next few days, the International Monetary Fund is urging them in advance to tighten their belts.

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Two weeks before a potentially epoch-defining US election, and just off the back of the world's latest inflation crisis, ministers and central bankers gathered in the nation's capital are facing strong calls to bring their financial houses in order until they can.

The fund, whose annual meetings begin there on Monday, has already pointed to some themes it hopes to hammer home with a barrage of projections and studies on the global economy in coming days.

The IMF's fiscal monitor will issue a warning on Wednesday that government debt levels driven by China and the United States are set to reach $100 trillion this year. Managing director Kristalina Georgieva emphasized in a speech Thursday how that mountain of debt is weighing on the world.

“Our forecast indicates an unforgiving combination of low growth and high debt – a difficult future,” he said. “Governments must work to reduce debt and rebuild buffers for the next shock – which will surely come, and perhaps sooner than we expect.”

Some Finance Ministers may get more reminders before the end of the week.

UK Chancellor of the Exchequer Rachel Reeves has already faced a warning from the IMF that there is a risk of market backlash if debt is not stabilised. Tuesday marks the last release of public finance data ahead of its October 30 budget

The UK tax office is taking a tougher approach to debt repayments, insolvency experts say, in a bid to squeeze £5 billion ($6.5 billion) of extra revenue.

What Bloomberg Economics Says:

“For all the talk of black holes, the overall effect of the Reeves budget will be a policy that is looser, not tighter, than the previous administration's plans.”

— Anna Andre and Dan Hanson, economists. For full analysis, click here

Meanwhile, Moody's Ratings has scheduled Friday for a possible report on France, which is currently facing intense scrutiny from investors. With its valuation a step higher than major competitors, markets will be watching for any cut in outlook.

For the biggest borrowers, a glimpse of the IMF's report, already released, contains a dire admonition: Your public finances are everyone's problem.

“Elevated debt levels and uncertainty around fiscal policy in systemically important countries such as China and the US could create significant spillovers in the form of higher borrowing costs and debt-related risks to other economies,” the fund said.

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

USA and Canada

Economists looked at a pair of home sales reports showing that falling mortgage rates are helping to stabilize the U.S. residential real estate market. On Wednesday, the National Association of Realtors will release contract closing data for previously owned homes, followed a day later by government statistics on new home sales.

Economists project a modest increase in both existing and new home sales in September. Resale is hampered by limited inventory that drives up asking prices and hurts affordability. While purchases of previously owned properties are near their weakest pace since 2010, builders have capitalized: New-home sales have risen slowly over the past two years, aided by stimulus.

Other US data next week include September durable goods orders, and capital goods shipments that will help economists adjust their estimates of third-quarter economic growth. The Federal Reserve also issues its Beige Book, which is read as an anecdotal account of the economy.

Regional Fed officials speaking next week include Jeffrey Schmidt, Mary Daly and Laurie Logan.

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

Europe, Middle East, Africa

As in other regions, attention will be largely focused on Washington; More than a dozen members of the European Central Bank's Governing Council are scheduled to attend in the state.

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

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

Among the euro-area economic reports, the highlights are likely to be consumer confidence on Wednesday, the Purchasing Managers' Index the next day and the ECB's inflation expectations survey on Friday. Similarly, Germany's Ifo institute will release its closely watched gauge of business confidence at the end of the week

In addition to France's possible rating review, S&P may release reports on Belgium and Finland on Friday.

Turning to the east, two central bank decisions could draw attention, starting with Hungary on Tuesday, which could keep borrowing costs unchanged.

The Bank of Russia indicated that continued inflationary 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 imposed on the emergency hike after President Vladimir Putin launched a full-scale invasion of Ukraine in February 2022.

Finally, Wednesday's data from South Africa showed inflation is expected to have slowed to 3.8% in September, raising the prospect of another rate cut next month. The central bank said it now forecasts consumer-price growth in the lower half of its 3% to 6% target band over the next three quarters.

Asia

China's lenders, including a push from the People's Bank of China, are expected to join a campaign to revive business activity by cutting their prime lending rates on Monday. 1-year and 5-year rates were seen sliding by 20 basis points to 3.15% and 3.65% respectively.

Later in the week, data will show if the country's industrial profits bounced back in September after a more than 17% decline in August. The most recent numbers show the economy expanded at its slowest pace in six quarters over a three-month period.

Elsewhere, the region gets a cluster of PMIs on Thursday, including Japan, Australia and India.

Singapore will report on Wednesday that consumer price inflation slowed in September, with price increase updates for the month also from Hong Kong and Malaysia.

On Friday, Japan will report Tokyo CPI for October, a key indicator that captures changes in corporate prices at the start of the fiscal second half.

South Korea will release third-quarter growth figures on Wednesday that could show the economy has slowed somewhat.

During the week, South Korea released early trade figures for October, while Taiwan and New Zealand released trade numbers for September.

Among the region's central banks, many leading officials will attend the IMF meeting in Washington. Reserve Bank of Australia deputy governor Andrew Houser held a fireside chat on Monday and three days later the bank released its annual report.

Reserve Bank of New Zealand chief Adrian Orr spoke on policy on the sidelines of the IMF confab, and Uzbekistan's central bank will decide on Thursday whether to pause for a second meeting after July's rate cut.

Latin America

Brazil watchers will be interested to see the weekly forecast in the central bank's so-called focus survey on Monday.

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

In Mexico, GDP proxy data should be consistent with a loss of momentum where many economists have marked their third-quarter growth forecasts. The economy is expected to slow for a third straight year in 2024.

GDP proxy data for Argentina will likely show South America's second-largest economy faltering and still in the grip of a recession that could stretch into 2025.

Paraguay's central bank held its rate-setting meeting; Policymakers have kept borrowing costs at 6% for the past six months and inflation has been running slightly above the 4% target.

On the price front, neither investors nor policymakers will be cheered by mid-month inflation reports from Brazil and Mexico, with initial consensus reading higher headlines.

The data here will likely do nothing to dampen the prospect of Brazil's central bank tightening policy on Nov. 6, while also giving Banxico a break from its Nov. 14 rally of nearly a third straight cut.

—Laura Dhillon Kane, Brian Fowler, Robert Jameson, Monique Vanek, Vince Golley, Brendan Scott and William Horobin with assistance.

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