In the first quarter of 2024, the global economy is recovering slightly after challenges related to the pandemic, Russia’s invasion of Ukraine and a banking crisis in the United States. However, activity is slowing in the United States and emerging countries are supporting global growth. Economic, social and political risks persist, notably the dissolution of the National Assembly in France. As a result, Coface adjusts the assessments of 5 countries and 26 sectors, indicating a positive short-term outlook only.
The global economy above the waterline
Our global growth forecast for 2024 is increased to 2.5%, with stabilization expected at 2.7% in 2025. Moderate growth in the United States and China should be offset by the acceleration of several emerging countries.
Despite the slowdown in the US economy, job market figures appear to have returned to pre-pandemic levels, a sign of better balance between labor supply and demand.
In Chinathe economic rebound remains uneven. GDP exceeded expectations in the first quarter of 2024, driven by investment in manufacturing, exacerbating concerns about production overcapacity. Given the weakness of domestic demand, Chinese producers will have to find outlets on foreign markets. Persistent deflationary pressures could continue to dampen business and household income.
Europewith GDP growth of 0.3% in the first quarter of 2024, and a activity that should restart thanks to the service sector seems to have emerged from the recession.
More laborious disinflation
THE slowing disinflation in the United States, confirms that the last mile in the fight against inflation is indeed the most difficult. The cause is to be found in the prices of services, particularly housing, which remain high. PCE inflation1which remains, with 2.7% above the US Federal Reserve’s 2% target confirms this point.
In Europe, inflation rebounded in May to 2.6%, after falling as much as 2.4% in April thanks to the slowdown in unprocessed food products and goods prices. If the probable rise in wages were to boost consumption, it will slow down disinflation. The continued decline in inflation to around 2% can only be achieved at the cost of a deterioration in the labor market or in the operating margins of companies with the risk of a further increase in insolvencies.
Emerging countries ready to accelerate, but constrained by the Fed
Only 1 or 2 rate cuts are now expected by the markets, a reflection of the Fed’s prudence. The latest projections from American monetary policymakers confirm that the rate cut will have to wait until the end of summer, or even the year. The ECB, for its part, launched its monetary easing with an initial cut of 25 basis points (bp) at the beginning of June.
Faced with the Fed’s delayed schedule, emerging countries will have to slow down or delay their cycle of rate cuts to avoid ultimately a rebound in inflation through imports. Brazil thus lowered its key rate by only 25 bp in May, after 6 consecutive cuts of 50 bp. The postponement introduced by the Fed will also condition monetary policies in Africa and Asia. The central banks of the main emerging economies have not yet started their monetary easing, limiting the extent of their economic rebound for 2024 and 2025.
Despite this shifted schedule, many regions will experience positive dynamics. Southeast Asian countries will, for some, reach growth rates above 6% (Vietnam and Philippines). India, despite a slight slowdown, is expected to record growth of 6.1%. Africa is also expected to outperform and exceed 4% growth with acceleration in all major economies (Nigeria, Egypt, Algeria, Ethiopia, Morocco and, to a lesser extent, South Africa).
American customs barriers: towards a trade war 2.0?
The announcement on May 14 of the sharp increase in customs duties on imports of Chinese goods confirms the desire of the United States to counter China in its strategic sectors. Last week, the European Union adopted similar measures by imposing additional customs duties of up to 38% on Chinese electric vehicles. Countries like India and Brazil have already taken similar steps, increasing the risk of global trade tensions. This context could make of Mexico and Vietnam the main beneficiaries of this reorganization, notably thanks to the transshipment of Chinese products. If commercial ties between the United States and China seem to have weakened, the conclusion of a decoupling between the two powers still appears hasty at this stage.
In addition to the current administration’s decision, candidate Trump’s campaign promises to implement global tariffs of 10% fuel concerns surrounding American trade policy while accentuating the fears of global trade fragmentation.
In an increasingly uncertain geopolitical context, an escalation of customs barriers would mean increased costs for businesses, contributing to the risk of a more inflationary future.
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1 The Personal Consumption Expenditures (PCE) index is the US Federal Reserve’s preferred inflation barometer. PCE takes into account price data provided by companies, not the consumer.
