Key Takeways
In Q1 2024, the global economy shows slight improvement amidst ongoing risks from the pandemic, geopolitical tensions, and U.S. banking issues. While the U.S. economy slows down, emerging nations are projected to drive growth, prompting Coface to revise assessments for 5 countries and 26 sectors.
The global growth forecast for 2024 has been upgraded to 2.5%, with a stabilization expected at 2.7% in 2025. U.S. labor market conditions have returned to pre-pandemic levels, while China’s GDP growth exceeds expectations but faces domestic demand challenges.
- Inflation remains a concern, with U.S. and European inflation figures still above central bank targets. The U.S. Federal Reserve’s cautious approach to rate cuts may constrain emerging economies, delaying their monetary easing and impacting their recovery momentum through 2024 and 2025.
In Q1 2024, the global economy improves slightly from previous years marked by pandemic, Russia-Ukraine conflict, and US banking crisis. However, US activity slows down, with emerging countries driving growth. Global economic, social, and political risks persist, including the dissolution of the French National Assembly. Consequently, Coface adjusts assessments for 5 countries and 26 sectors, indicating short-term positive outlook only.
The world economy above the waterline
Our global growth forecast for 2024 has been upgraded to 2.5%, with stabilization expected at 2.7% in 2025. Moderate growth in the US and China should be offset by acceleration in several emerging countries.
Despite the slowdown in the US economy, labor market figures appear to have returned to pre-pandemic levels, indicating a better balance between labor supply and demand.
In China, the economic rebound remains uneven. GDP exceeded expectations in the first quarter of 2024, thanks to 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 hold backcorporate and household incomes.
Europe, with GDP growth of 0.3% in the first quarter of 2024, and activity set to pick up thanks to the services sector, seems to be out of recession.
More arduous disinflation
The slowdown in disinflation in the United States confirms that the last mile in the fight against inflation is indeed the most difficult. The cause lies in the persistently high prices of services, and housing. PCE1 inflation, which at 2.7% remains above the US Federal Reserve’s 2% target, confirms this point.
In Europe, inflation rebounded in May to 2.6%, after dropping to 2.4% in April thanks to a slowdown in unprocessed food and goods prices. While the likely rise in wages should boost consumption, it will slow disinflation. If inflation is to continue to fall to around 2%, it will have to do so at the cost of a deterioration in the labor market and corporate operating margins, with the risk of a further increase in insolvencies.
Emerging economies ready to accelerate, but constrained by the Fed
Markets are now expecting only 1 or 2 rate cuts, reflecting the Fed’s cautious stance. The latest projections from US monetary policymakers confirm that rate cuts will have to wait until the end of the summer, or even the end of the year. For its part, the European Central Bank launched its monetary easing with a first cut of 25 basis points (bp) at the beginning of June.
Faced with the Fed’s delayed timetable, emerging countries will have to slow down or delay their rate-cutting cycle to avoid a rebound in inflation via imports. Brazil, for example, cut its key rate by just 25bp in May, after 6 consecutive 50bp cuts. The Fed’s postponement will also condition monetary policies in Africa and Asia. The central banks of the main emerging economies have not yet begun their monetary easing, limiting the scale of their economic rebound for 2024 and 2025.
Despite this delayed timetable, many regions will enjoy positive momentum. Someof…
