2024, a pivotal year
Busy, eventful, buzzing, decisive, crucial... there has been no shortage of adjectives to describe the year that has just begun. After a somewhat turbulent 2023, which ultimately turned out much better than expected, 2024 is shaping up to be as decisive as it is uncertain. As geopolitical tensions intensify internationally, against a backdrop of ever-worsening antagonisms and strategic rivalries, no fewer than 60 national elections - presidential and/or legislative - will shape the year, in a political and social environment that is deteriorating to say the least. While, as 2023 has shown, the worst is never certain, the end of history is a long way off and the victory of liberal democracies is far from being definitively sealed. To put it bluntly: the only certainty we can have, in the end, is that of being surprised.
In this context, the macroeconomic equation has clearly become a derivative of (geo)political balances. Consequently, our central scenario, which remains that of a prolonged but still soft landing for the global economy (+2.2% after +2.6% in 2023), is more akin to a ridge than a boulevard. There are many associated risks, some of them vertiginously bearish. After ending the year with a bang, the financial markets, still convinced that disinflation can be completely immaculate, have gradually come to their senses, albeit still far too complacent in our view. Without even mentioning the disruption of value chains, brought to the fore by the strikes in the Red Sea, or the ever-increasing risk of the Middle East conflict spreading, there is no guarantee at present that the battle against inflation has been won. Neither in the long-term, of course, nor even in the short-term, despite the ongoing slowdown in the global economy. With core inflation still twice the central bank target in most developed monetary areas, the challenge for 2024 will be to see whether the monetary tightening that has been underway for over 18 months is enough to go the ‘last mile’ and bring inflation back to 2%. And to keep it there.
Regardless, and barring an 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 firmly in the past. While the volume of debt to be refinanced will gradually increase, there is every reason to believe that the pivot in terms of monetary policy will not be pivotal in terms of claims, and that the upward trend in insolvencies that we have witnessed for over a year will continue. This remains the main endogenous risk to our central scenario: that the virtuous circle that has hitherto combined low insolvencies, a resilient labour market and household dissaving will be replaced by a vicious circle combining accelerating insolvencies, rising unemployment, a marked slowdown in wages and, in this context, a rise in household savings. This ultimately would have an even greater impact on demand, despite the fall in inflation.
In the framework of our central scenario, we have adjusted 13 country assessments (12 upgrades and 1 downgrade) and 22 sector assessments (17 upgrades and 5 downgrades), reflecting a significant improvement in the outlook, albeit fragile, in an environment that remains highly unstable and therefore uncertain.
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