Lost illusions and great expectations in Coface Barometer for Q2-2023
The year 2023 began with great enthusiasm, not to say exuberance, but in all likelihood it will not be the year that most observers and investors were expecting. While it is of course too early, halfway through this new exercise, to draw any definitive conclusions, the first few months of 2023 have nonetheless reinforced some of our convictions:
- no, inflation will not spontaneously and painlessly return to its target (2%) in developed countries;
- no, the major central banks will not 'pivot' between now and the end of the year;
- and no, the mere lifting of health restrictions will not enable China to play the role of relay engine for the global economy.
The tangible recession finally recorded by Germany at the turn of the year - and in which the country still seems to be mired - and the turbulence observed since early March in the financial sector - for the time being limited to US regional banks - could be added to the list of lost illusions. These examples have the merit of reminding us of two essential things that the market had lost sight of: access to abundant, cheap energy remains absolutely central to the functioning of the global economic system, and monetary policy has far more (direct) impact on asset valuations and financial stability than on consumer prices.
The macroeconomic and financial outlook to the end of 2024 remains closely linked to inflation trends and the monetary response of the main central banks. While core inflation will only fall very gradually and marginally as long as labour markets remain under pressure, the risk of a rebound in headline inflation in the second half of the year seems to be receding, and with it the risk of further, and certainly excessive, tightening by the monetary authorities. The scale and nature of China's recovery - which is much less vigorous than expected and driven mainly by services - coupled with record levels of natural gas stocks in Europe and an oil market that is still adequately supplied, suggest that the second half of 2023 and the winter of 2024 will be far less complicated on the energy front. This raises hopes of a significant rebound in activity in Europe (mainly Germany and the UK) in 2024, which would offset the sharp slowdown expected in the US, resulting in virtually stable global growth on average over the full year (+2.3%, after +2.2% in 2023). Slightly more pessimistic than the consensus, our forecasts are nonetheless subject to a number of downside risks, foremost among them the supply of energy and credit, whose disruptions are likely to thwart even the most optimistic expectations.
In this context, we modified 15 country assessments (13 upgrades and 2 downgrades) and 26 sector assessments (13 upgrades and 13 downgrades), highlighting a significant improvement in the outlook, in an environment which nonetheless remains very demanding and uncertain.
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