HONG KONG SAR – Media OutReach Newswire – February 6, 2024 –
After a somewhat eventful year 2023, which ultimately turned out to be much better than expected, the year 2024 promises to be as decisive as it is uncertain, both on the (geo)political level, with more than 60 national elections – presidential and /or legislative – and in economic terms, with increasing risks linked to a global economy which continues to slow down. In this context, we modified 13 country risk assessments (12 upgrades and 1 downgrade) and 22 sector risk assessments (17 upgrades and 5 downgrades), reflecting a significant improvement in the outlook, albeit fragile, in an environment that remains very unstable. and therefore uncertain.
Global growth continues to weaken but not broken (yet)
For the third consecutive year, growth in the global economy is expected to slow to
2.2% in 2024, after 2.6% last year.
Although the soft landing appears to be on track in the United States,
economic activity should continue to decelerate in the first half of the year in the wake of household spending, especially as support from the excess savings stock accumulated during the pandemic, now largely exhausted, will continue to decline.
The Chinese economy, which seemed to have regained its footing in the second half of 2023, ended the year with GDP growth of 5.2%, slightly above the official growth target.
is at a standstill at the start of the year. The rebound in consumption remains fragile and concerns over housing market correction, local government debt resolution and deflationary pressures continue to weigh on private investment and consumer confidence.
In Europe, (near) stagnation is expected in the first semester. The manufacturing industry continues to be penalized by still high costs and sluggish external demand.
Inflation and interest rates: an unfavorable environment for businesses
Despite a decline in 2023, and a rather reassuring short-term trend, underlying inflation remains
twice the central bank’s target in the most developed monetary zones. The challenge for 2024 will be to see whether the monetary tightening initiated over 18 months ago is sufficient to go further.
‘last mile’ and reduce inflation to 2%. And to keep it there.
Still tight labor markets, with unemployment rates below their structural level, historically high job vacancy rates and sustained wage dynamics, suggest that the battle is not yet won, regardless of any supply shocks that could arise in the current geopolitical environment.
In any case, and barring any accident of course, the interest rate environment to which all agents – households, businesses and governments – have become accustomed over the last fifteen years is now definitely over and
interest rates are expected to remain at high levels throughout the year in all advanced economies.
Market expectations of up to 6 rate cuts (of 25 bp[1] each) over the year seem excessive to us, on both sides of the Atlantic. In Europe, despite the weak dynamic of activity, underlying inflationary pressures still above 2% should not allow the ECB – and the Bank of England – to begin monetary easing before, at best, summer 2024.
This unfavorable economic environment will
keep businesses in a difficult situation. A sharp acceleration in bankruptcies therefore constitutes one of the main downside risks of our central scenario, which in many respects looks more like a crest than a boulevard.
Emerging economies, drivers of global growth, but still very heterogeneous
In 2024, emerging countries will be the
main drivers of the global economycontributing 1.7 percentage points to the 2.2% growth in global GDP.
Emerging economies will therefore represent three-quarters of global growththe highest since 2013. Southeast Asia will once again be one of the most dynamic regions, with growth of 4.6%, after 4% last year.
The poorest and most indebted countries will face even greater difficulties. With interest rates high and a dollar set to remain strong, there is every reason to fear a
resurgence of sovereign defaults. Some countries are already in default or near default, such as Sri Lanka, Ghana, Ethiopia, Malawi, Pakistan and Laos.
Escalation of tensions in the Red Sea, the cost of maritime transport soars
Instability in the Red Sea region is a
major threat to maritime traffic. This trade route provides access to the Suez Canal, the fastest maritime route connecting Europe (notably Rotterdam or London) to Asia. Around 12% of global trade and 30% of global container traffic pass through it.
Given the threat facing the region,
most shipping companies already avoid the Suez Canal and opt for the Cape of Good Hope, which takes them around the African continent and extends the travel time by more than ten days.
For those who continue to use it, security and insurance costs skyrocket.
To offset these costs, carriers are rerouting their ships to European and Mediterranean trade routes, reducing the space available for goods traveling on trans-Pacific and North-South routes, which also results in higher rates.
Despite the increase in freight rates which
have more than doubled from Shanghai, and even tripled on certain routes to Europethey remain, on average, below their record levels at the start of 2022. For the moment, we believe that the inflationary impact will be contained – of the order of 0.1 point of inflation at the global level (0.2 point in Europe) and does not seem likely to derail our central scenario.
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