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Consolidative Tuesday

Overview: The yen and sterling are trading quietly after the recent drama, but with the Party Congress ending, the Chinese yuan has been permitted to fall…



Overview: The yen and sterling are trading quietly after the recent drama, but with the Party Congress ending, the Chinese yuan has been permitted to fall faster. It approached the 2% band today and its loss of about 0.65% today makes it the weakest among the emerging market currencies. Most of the major currencies seem to be consolidating. Chinese stocks pared earlier losses as foreign buying via the Hong Kong link returned after large sales yesterday. Asia Pacific equities were mixed, while Europe’s Stoxx 600 is slightly firmer after yesterday’s 1.4% gain. US futures are softer. Benchmark 10-year yields are mostly 5-8 bp lower in Europe. The 10-year Gilt is off about 3 bp and the 30-year yield is down four basis points bringing both to about 3.70%. The 10-year US Treasury yield is about six basis points low near 4.18%. Gold was turned back yesterday after briefly trading above its 20-day moving average (~$1667) and settled slightly below $1650. It is straddling $1640 in the European morning. December WTI is soft at the lower end of yesterday’s range. It is now changing hands around $83.40. Last week’s low was closer to $81.30. Bargain hunting helped lift US natgas prices yesterday to snap a six-day sharp drop. Today it is flat. Europe’s natgas benchmark is up 2.5% today after dropping by around a quarter in the past two sessions. EU energy ministers meet today, and capping gas prices still seems quite difficult without encouraging demand and giving others a free ride. Iron ore fell 2% today, while December copper is off 1.7%. Lastly, December wheat is off 1% after falling 1.4% yesterday. It is at new lows for the month near $8.30 a bushel. 

Asia Pacific

While the BOJ's intervention and its policy meeting at the end of the week is the main focus, do not forget about fiscal policy. Capital might have struck the UK, protesting the unfunded deficit that Truss was pursuing, but Japan is different. Prime Minister Kishida's new spending bill is expected to be announced toward the end of the week. The package is expected to be between JPY20-JPY30 trillion (or roughly $134-$200 bln). It will include some local government spending as well, and may use some unspent funds from earlier budgets, especially last year, when tax revenues were stronger than expected. It is an awkward time for the Economic Minister Yamagiwa to resign (over ties to the Unification Church). He will be replaced by former health minister Goto.

Foreign investors have been net sellers of Japanese stocks and bonds this year (weekly average of JPY113.4 bln and JPY51 bln, respectively or ~$870 mln and ~$400 mln). Last year, through mid-October, foreigners were net buyers of Japanese bonds and stocks (JPY117 bln and JPY51 bln, respectively. For their part, Japanese investors have been sellers of foreign bonds this year (~JPY436 bln weekly average) and but buyers of foreign stocks (~JPY88.5 bln weekly average). During this period last year, Japanese investors for buyers of foreign bonds (~JPY145.5 bln weekly average) and small sellers of foreign equities (~JPY98 bln weekly average).

The dollar has been confined to half a yen range today above JPY148.60. The volatility of the past two sessions has evaporated. There are options for around $1.3 bln at JPY150 that expire today but we suspect that the hedging helped the dollar rise to nearly JPY152 at the end of last week. The market will likely probe for a new range, and it could be JPY148-JPY150. News that the Australian government projects the fiscal deficit to be half of what it had been projected in the year ending in June appears to have had little impact on the Australian dollar. It too is consolidating after two sessions of dramatic swings that saw it traded roughly $0.6200-$0.6400. It is trading quietly today between $0.6300 and $0.6340. The Chinese yuan slumped even though officials tweaked the rules to make it allow companies to repatriate more funds raises offshore. The dollar gapped higher and reached nearly CNY7.31, the upper end of 2% band. The reference rate, which had been set around CNY before and during the Congress, was set at CNY7.1668 (median in Bloomberg's survey was CNY7.2198). Against the offshore yuan, the dollar traded to nearly CNH7.37.


Here is a narrative of the UK events. After numerous miscues and petty scandals, Johnson resigned. A party leadership contest began and under the rules in the early 2000s, the Tory MPs would narrow the field to two and let the members of the party decide. Sunak led among the MPs and Truss came in second. Sunak lost the vote among the party members. Truss campaigned on pro-growth, tax cut platform. It should hardly be surprising that she was implementing her strategy, which shunned by capital, and reflected in a sharp sell-off in sterling and dramatic rise in rates. Large, levered pools of capital, especially pension funds and insurance companies faced destabilizing margin calls and the central bank had to step in buying what amounted to be relatively small amounts of Gilts. The Tory MPs threatened to fire Truss (vote of no confidence) and she resigned. A new leadership contest ensued. There was no credible opposition so Sunak to the head of the party, yet the party is anything but united. He is the third prime minister in about seven weeks.

By overturning the rank-and-file decision, the Tories have jumped from one horn of the problem to the other. From a Prime Minister that carried the Tory voters but not the MPs to a Prime Minister who has the support of the MPs but not necessarily of the Tory voters. The UK economy already headed for a recession, if not in it already, will have another dose of austerity. The Bank of England threatened a sizable rate hike. In the turmoil in late September, the swaps market thought this could be as much as a 150 bp rate hike. The swing back toward orthodoxy has seen expectations roughly halved. The market seems comfortable with a 75 bp hike and has about a 25% chance of a 100 bp move next week. 

The euro reached its best level against the Swiss franc in three months today (~CHF0.9900). It has now met the (38.2%) retracement objective of its losses from the year's high set in February slightly above CHF1.06. What is counter-intuitive about the euro's gain (~4.5%) since late September's 7-year low (~CHF0.9410) is as Russia threatens the use of nuclear weapons and the new Italian government was bickering as the government was being formed. On a trade-weighted basis, the franc is trading at three-month lows. Moreover, sight deposits are collapsing in Switzerland as the SNB mops up extra liquidity. Total sight deposits have fallen 11% already this month after an 11% decline last month. They have fallen by more than CHF150 bln over the past five weeks. Meanwhile, for the past four week, banks have borrowed dollars from the SNB's swap line with the Fed. At least week's auction, the banks too about $11.1 bln after roughly $6.3 bln the previous week. Last week 17 banks took dollars, and in the previous week 15 did. While there could be a systemic issue here, we continue to think the more likely explanation is a type of financial arbitrage, where the dollars are swapped for Swiss franc and put in the SNB's repo facility or on deposit with the SNB.

The euro has drawn little comfort from the German IFO survey that held up better than expected. The overall business climate was little changed at 84.3 (from a revised 84.4 in September). While the current assessment softer slightly (94.1 vs. 94.5, but better than the 92.5 expected), the expectations component rose (to 75.6 from a revised 75.3). The euro held just below $0.9900 and found support near $0.9850. The intraday momentum indicators suggest another try at $0.9900 is likely today. Sterling is firm but unable to scale the heights that saw it test the $1.1400 area yesterday. It appears that support is being tentatively formed around $1.1250-$1.1275. The push to session highs in the European morning near $1.1330 is stretching the momentum indicators.


The disappointingly weak flash PMI played into talk that after next month's 75 bp hike, the Federal Reserve will slow the pace of its hikes. The US economy has been losing momentum if that makes sense after it contracted in the first two quarters. It was the fourth consecutive month that the composite was below the 50 boom/bust levels. New orders in manufacturing and new business in services are both below 50. The employment sub-index of the services PMI fell to 49.4, the lowest level since the early days of the pandemic. Manufacturing prices (input/output) fell but in services prices (input/charged) ticked up. The pipeline also thinned, with backlogs falling in manufacturing and services.

Today the US reports August house prices. The FHFA purchase price index is expected to have fallen for the second consecutive month for the first time since 2011. The S&P Corelogic Case-Shiller 20-city price metric is also expected to have fallen for the second month in a row. Given the slowdown in activity, spurred primarily by higher rates and less confidence, the weakening of prices will not surprise. When the Fed tightens financial conditions, among other things, it means downward pressure on asset prices, including houses.

There was some suggestion that Saudi Arabia would consider selling its Treasury holdings if the US went forward with its bill that would allow OPEC to be challenged in US courts for being a cartel. US Treasury figures suggest that it held a little less than $120 bln of Treasuries at the end of June, which might understate the case a bit. Is this much of a threat?  Probably not. First, Saudi Arabia's chief export is denominated in US dollar, and the Saudi currency is pegged to the dollar, which among other things, means that when the Fed hikes next week, so will the Saudi Monetary Authority. Second, to sell US Treasuries means to give up yield, liquidity, and security. Third, the amount is modest. Consider that the BOJ's recent intervention (last month and this month's operation) may be close to $60 bln and the impact on the Treasury market has been minimal. The same could be said when Russia reduced its Treasury holdings by around $90 bln. The NOPEC bill may not be a good idea, but not because the Saudi's Treasury holdings give it leverage on US policy. 

Mexico's CPI for the first half of October was mixed. The headline and core rates rose by a little more than 0.4% from 8.5% and 8.4% year-over-year readings, respectively. That was less than expected for the headline and a little more for the core, however, not sufficiently to signal anything new. Today, Mexico report the IGAE economic activity report, which is a bit like a monthly GDP proxy. The median forecast of the 11 economists in Bloomberg's survey is for a flat number, though the average is for a small decline. Net-net it has been flat for the May-July period. The week's highlights include the September jobs report on Thursday and the trade figures on Friday.

Meanwhile, Brazil reported a larger than expected September current account deficit ($5.68 bln vs. $5.43 bln in August and median forecasts for $3.04 bln). However, the current account is being more than covered by long-term capital flows, direct investment. The current account deficit has averaged $3.29 bln a month this year, while direct investment has averaged more than twice that (~$7.85 bln). Tensions are rising ahead of this weekend's presidential run-off contest. Both Bolsonaro and Lula were critical of former lower house deputy Jefferson who shot at police who tried to arrest him. The latest polls show Lula with a few percentage-point lead. The dollar fell 3% against the Brazilian real last week and rose almost 2.5% yesterday. The dollar tested the BRL5.30 area. This month's high was set on October 13 near BRL5.38. The monetary policy committee of the central bank (COPOM) meets on Wednesday and is expected to keep the Selic rate steady at 13.75%. 

The US dollar is trading quietly against the Canadian dollar in a 20-25 tick range on either side of the CAD1.3705 settlement. The intraday momentum indicators are stretched, suggesting, the greenback may pullback in the North American session, ahead of tomorrow Bank of Canada meeting. The pendulum of market sentiment has swung from not even fully discounting a 50 bp hike earlier this month to now when the swaps market has about a 1-in-3 chance of a 100 bp move, which seems a bit much. The greenback fell recorded the month's low against the Mexican peso before the weekend near MXN19.8860. Yesterday's bounce stalled slightly above MXN20.00 and it is back near its lows today. If last week's low is taken out today, we suspect it will be minimal.


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EY Eyes Comeback for Biopharma M&A

EY noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021. The $88 billion accounted for most of the…



A recent trickle of mergers and acquisitions (M&A) announcements in the billion-dollar-and-up range suggests that biopharma may be ready to resume dealmaking this year—although the value and number of deals isn’t expected to return to the highs seen just before the pandemic.

2022 ended with a handful of 10- and 11-figure M&A deals, led by Amgen’s $27.8 billion buyout of Horizon Therapeutics, announced December 13. The dealmaking continued into January with three buyouts announced on the first day of the recent J.P. Morgan Healthcare Conference: AstraZeneca agreed to acquire CinCor Pharma for up to $1.8 billion, while Chiesi Farmaceutici agreed to shell out up to $1.48 billion cash for Amryt, and Ipsen Group said it will purchase Albireo Pharma for $952 million-plus.

Biopharmas generated about $88 billion in M&A deals in 2022, down 15% from $104 billion in 2021. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. The number of biopharma deals fell 17%, to 75 deals from 90. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine. [EY]
EY—the professional services firm originally known as Ernst & Young—recently noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021 [See Chart]. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. That $135 billion figure is less than half the record-high $313 billion recorded in 2019, including $261 billion in 70 biopharma deals.

The number of biopharma deals fell 17% to 75 deals from 90. EY’s numbers include only deals greater than $100 million. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine.

We expect this to be a more active year as the sentiment starts to normalize a little bit,” Subin Baral, EY Global Life Sciences Deals Leader, told GEN Edge.

Baral is not alone in foreseeing a comeback for biopharma M&A.

John Newman, PhD, an analyst with Canaccord Genuity, predicted last week in a research note that biopharma companies will pursue a growing number of smaller cash deals in the range of $1 billion to $10 billion this year. He said rising interest rates are discouraging companies from taking on larger blockbuster deals that require buyers to take on larger sums of debt.

“We look for narrowing credit spreads and lower interest rates to encourage larger M&A ($50 billion and more) deals. We do not anticipate many $50B+ deals that could move the XBI +5%,” Newman said. (XBI is the SPDR S&P Biotech Electronic Transfer Fund, one of several large ETFs whose fluctuations reflect investor enthusiasm for biopharma stock.)

Newman added: “We continue to expect a biotech swell in 2023 that may become an M&A wave if credit conditions improve.”

Foreseeing larger deals than Newman and Canaccord Genuity is PwC, which in a commentary this month predicted: “Biotech deals in the $5–15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle.”

Those capabilities include leadership within a specific therapeutic category, for which companies will have to buy and sell assets: “Prepared management teams that divest businesses that are subscale while doubling down on areas where leadership position and the right to win is tangible, may be positioned to deliver superior returns,” Glenn Hunzinger, PwC’s U.S. Pharma & Life Science Leader, and colleagues asserted.

The Right deals

Rising interest and narrowing credit partially explain the drop-off in deals during 2022, EY’s Baral said. Another reason was sellers adjusting to the drop in deal valuations that resulted from the decline of the markets which started late in 2021.

Subin Baral, EY Global Life Sciences Deals Leader

“It took a little bit longer to realize the reality of the market conditions on the seller side. But on the buyer side, the deals that they were looking at were not just simply a valuation issue. They were looking at the quality of the assets. And you can see that the quality deals—the right deals, as we call them—are still getting done,” Baral said.

The right deals, according to Baral, are those in which buyers have found takeover targets with a strong, credible management team, solid clinical data, and a clear therapeutic focus.

“Rare disease and oncology assets are still dominating the deal making, particularly oncology because your addressable market continues to grow,” Baral said. “Unfortunately, what that means is the patient population is growing too, so there’s this increased unmet need for that portfolio of assets.”

Several of 2022’s largest M&A deals fit into that “right” category, Baral said—including Amgen-Horizon, Pfizer’s $11.6-billion purchase of Biohaven Pharmaceuticals and the $6.7-billion purchase of Arena Pharmaceuticals (completed in March 2022); and Bristol-Myers Squibb’s $4.1-billion buyout of Turning Point Therapeutics.

“Quality companies are still getting funded one way or the other. So, while the valuation dropped, people were all expecting a flurry of deals because they are still companies with a shorter runway of cash that will be running to do deals. But that really didn’t happen from a buyer perspective,” Baral said. “The market moved a little bit from what was a seller’s market for a long time, to what we would like to think of as the pendulum swinging towards a buyers’ market.”

Most biopharma M&A deals, he said, will be “bolt-on” acquisitions in which a buyer aims to fill a gap in its clinical pipeline or portfolio of marketed drugs through purchases that account for less than 25% of a buyer’s market capitalization.

Baral noted that a growing number of biopharma buyers are acquiring companies with which they have partnered for several years on drug discovery and/or development collaborations. Pfizer acquired BioHaven six months after agreeing to pay the company up to $1.24 billion to commercialize rimegepant outside the U.S., where the migraine drug is marketed as Nurtec® ODT.

“There were already some kind of relationships there before these deals actually happened. But that also gives an indication that there are some insights to these targets ahead of time for these companies to feel increasingly comfortable, and pay the valuation that they’re paying for them,” Baral said.

$1.4 Trillion available

Baral sees several reasons for increased M&A activity in 2023. First, the 25 biopharma giants analyzed by EY had $1.427 trillion available as of November 30, 2022, for M&A in “firepower”—which EY defines as a company’s capacity to carry out M&A deals based on the strength of its balance sheet, specifically the amount of capital available for M&A deals from sources that include cash and equivalents, existing debt, and market cap.

That firepower is up 11% from 2021, and surpasses the previous record of $1.22 trillion in 2014, the first year that EY measured the available M&A capital of large biopharmas.

Unlike recent years, Baral said, biopharma giants are more likely to deploy that capital on M&A this year to close the “growth gap” expected to occur over the next five years as numerous blockbuster drugs lose patent exclusivity and face new competition from lower-cost generic drugs and biosimilars.

“There is not enough R&D in their pipeline to replenish a lot of their revenue. And this growth gap is coming between 2024 and 2026. So, they don’t have a long runway to watch and stay on the sidelines,” Baral said.

This explains buyers’ interest in replenishing pipelines with new and innovative treatments from smaller biopharmas, he continued. Many smaller biopharmas are open to being acquired because declining valuations and limited cash runways have increased investor pressure on them to exit via M&A. The decline of the capital markets has touched off dramatic slowdowns in two avenues through which biopharmas have gone public in recent years—initial public offerings (IPOs) and special purpose acquisition companies (SPACs).

EY recorded just 17 IPOs being priced in the U.S. and Europe, down 89% from 158 a year earlier. The largest IPO of 2022 was Prime Medicine’s initial offering, which raised $180.3 million in net proceeds for the developer of a “search and replace” gene editing platform.

Another 12 biopharmas agreed to SPAC mergers with blank-check companies, according to EY, with the largest announced transaction (yet to close at deadline) being the planned $899 million merger of cancer drug developer Apollomics with Maxpro Capital Acquisition.

“For the smaller players, the target biotech companies, their alternate source of access to capital pathways such as IPOs and SPACs is shutting down on them. So how would the biotech companies continue to fund themselves? Those with quality assets are still getting funded through venture capital or other forms of capital,” Baral said. “But in general, there is not a lot of appetite for the biotech that is taking that risk.

Figures from EY show a 37% year-to-year decline in the total value of U.S. and European VC deals, to $16.88 billion in 2022 from $26.62 billion in 2021. Late-stage financing rounds accounted for just 31% of last year’s VC deals, down from 34% in 2021 and 58% in 2012. The number of VC deals in the U.S. and Europe fell 18%, to 761 last year from 930 in 2021.

The decline in VC financing helps explain why many smaller biopharmas are operating with cash “runways” of less than 12 months. “Depending on the robustness of their data, their therapeutic area, and their management, there will be a natural attrition. Some of these companies will just have to wind down,” Baral added.

M&A headwinds

Baral also acknowledged some headwinds that are likely to dampen the pace of M&A activity. In addition to rising interest rates and inflation increasing the cost of capital, valuations remain high for the most sought-after drugs, platforms, and other assets—a result of growing and continuing innovation.

Another headwind is growing regulatory scrutiny of the largest deals. Illumina’s $8 billion purchase of cancer blood test developer Grail has faced more than two years of challenges from the U.S. Federal Trade Commission and especially the European Commission—while Congress acted last year to begin curbing the price of prescription drugs and insulin through the “Inflation Reduction Act.”

Those headwinds may prompt many companies to place greater strategic priority on collaborations and partnerships instead of M&A, Baral predicted, since they offer buyers early access to newer technologies before deciding whether to invest more capital through a merger or acquisition.

“Early-stage collaboration, early minority-stake investment becomes increasingly important, and it has been a cornerstone for early access to these technologies for the industry for a long, long time, and that is not changing any time soon,” Baral said. “On the other hand, even on the therapeutic area side, early-stage development is still expensive to do in-house for the large biopharma companies because of their cost structure.

“So, it is efficient cost-wise and speed-wise to buy these assets when they reach a certain point, which is probably at Phase II onward, and then you can pull the trigger on acquisitions if needed,” he added.

The post EY Eyes Comeback for Biopharma M&A appeared first on GEN - Genetic Engineering and Biotechnology News.

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Pfizer’s Albert Bourla spells out ‘transition year’ for Covid products, with sales expected to reach a low point

On the heels of a record sales year, Pfizer is bracing for impact as it expects Covid-19 revenue to bottom out in 2023.
That’s due to lower compliance…



On the heels of a record sales year, Pfizer is bracing for impact as it expects Covid-19 revenue to bottom out in 2023.

That’s due to lower compliance with vaccine recommendations, fewer primary vaccines being administered, and a “significant” government supply that’s expected to last throughout early this year, execs said Tuesday on the company’s Q4 earnings call.

CEO Albert Bourla anticipates $13.5 billion in Comirnaty sales this year, down 64% from 2022, and just $8 billion in Paxlovid revenue, down 58% from 2022.

“We expect 2023 to be a transition year in the US,” he said on the call, adding that the company sold more vaccine and treatment doses this year than were actually used. “This resulted in a government inventory build that we expect to be absorbed sometime in 2023 — probably the second half of the year. Around that time, we expect to start selling Comirnaty through commercial channels at commercial prices.”

Just 15.5% of eligible Americans have received bivalent booster doses, compared to 69.2% who completed their primary series, according to the CDC’s latest data. Last week, the FDA’s vaccines advisory committee voted unanimously in favor of “harmonizing” Covid vaccine compositions, meaning all new vaccine recipients would receive a bivalent shot, regardless of whether they’ve received the primary series.

Even so, only 31% of people in the US received a Covid vaccine this year, and Pfizer expects that number to dip to about 24% in 2023.

David Denton

Bourla’s expecting a similar slump in Paxlovid sales, due to existing unused government supply. According to data from ASPR updated last week, states have about 4 million unused Paxlovid courses.

The antiviral significantly underperformed this year, missing Bourla’s prior full-year projections by just over $3 billion. Comirnaty seemed to pick up the slack, however, raking in roughly $37.8 billion in global sales, or about $3.8 billion more than Bourla predicted at the end of the third quarter.

“While patient demand for our Covid products is expected to remain strong throughout 2023, much of that demand is expected to be fulfilled by products that were delivered to governments in 2022 and recorded as revenues last year,” CFO David Denton said on the call.

Angela Hwang

Commercial pricing for both Comirnaty and Paxlovid will likely kick in around the second half of this year, according to Bourla. While the pharma giant previously said it expects to charge between $110 and $130 for the BioNTech-partnered shot (almost quadrupling the price), chief commercial officer Angela Hwang said the team is still “preparing what those pricing scenarios could look like” for Paxlovid and will “share more at the right time.”

The Pfizer team is expecting Covid sales to pick back up in the next couple years — and if all goes according to plan, a successful combination shot for flu and Covid-19 would “bring the percentage of Americans receiving the Covid-19 vaccine closer to the portion of people getting flu shots, which is currently about 50%,” Bourla said. The company launched a Phase I study for an mRNA-based combo vaccine back in November.

Lower projected Covid sales led Bourla to set his full-year sales expectations in 2023 at $67 billion to $71 billion, down roughly 30% from 2022, which let down some analysts.

“PFE guidance for 2023 provided with 4Q22 results was disappointing despite the company talking down financial prospects in recent weeks,” SVB Securities analysts wrote in a note to investors on Tuesday.

However, when it comes to R&D investment, Bourla’s keeping his foot on the gas. As the CEO said back in November, “It’s all about what’s next.”

That’s why he’s earmarking around $12.4 billion to $13.4 billion for R&D this year, up nearly 9% from last year. It’s all part of his effort to make up for an expected $17 billion loss due to patent expiries between 2025 and 2030.

Last quarter, he spelled out ambitious plans to bring 19 new products or indications to market over the next year and a half. The chief executive highlighted a few of those programs on Tuesday, including potential combo shots for flu, Covid-19 and RSV, an oral GLP-1 candidate for diabetes and obesity, and potential vaccines for Lyme disease and shingles.

Other programs, however, didn’t make the cut. Pfizer also disclosed on Tuesday that it cut eight programs, including recifercept, an achondroplasia drug that was the centerpiece of Pfizer’s Therachon buyout in 2019, and two Paxlovid indications that failed their respective Phase III trials.

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IMF Upgrades Global Growth Forecast As Inflation Cools

IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday,…



IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday, painting a slightly less gloomy picture than three and a half months ago, as inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis following Russia’s invasion of Ukraine has been less severe than initially feared.

But, as Statista's Felix Richter notes, that’s not to say the outlook is rosy, as the global economy still faces major headwinds.

However, the IMF predicts the slowdown to be less pronounced than previously anticipated.

Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024.

The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.

Infographic: IMF Upgrades Global Growth Forecast as Inflation Cools | Statista

You will find more infographics at Statista

One of the reasons behind the cautiously optimistic outlook is the latest downward trend in inflation, which suggests that inflation may have peaked in 2022.

The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post released along with the report.

“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”

The risks to the latest outlook remain tilted to the downside, the IMF notes, as the war in Ukraine could further escalate, inflation continues to require tight monetary policies and China’s recovery from Covid-19 disruptions remains fragile. On the plus side, strong labor markets and solid wage growth could bolster consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for more monetary tightening.

In conclusion, Gourinchas calls for multilateral cooperation to counter “the forces of geoeconomic fragmentation”.

“This time around, the global economic outlook hasn’t worsened,” he writes. “That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”

However, just because the 'trend' has shifted doesn't mean it's mission accomplished...

That looks an awful lot like Central Bankers' nemesis remains - global stagflation curb stomps the dovish hopes.

Tyler Durden Tue, 01/31/2023 - 14:45

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