Global economy on the rise – Barometer Q3 2022

Beyond the effects of the war in Ukraine, global monetary tightening and multiple constraints on China’s growth create a gloomy outlook. Thus, in the short run, the economy moves into a “stagflation” regime where near-zero growth and rapid price increases coexist.

The possibility of a global recession is becoming increasingly clear.

In this context, Coface makes overall downward revisions to its GDP growth forecasts, country and sector estimates.

Ratings for eight countries, including Italy, Denmark, Switzerland, Egypt and Chile, were revised downward after 2’s 19 downgrade.c trimester.

49 sectors have been downgraded It highlights the clear deterioration of conditions for sectors sensitive to the economic cycle, such as construction, metals and even timber, and this across different geographies.

Winter and recession reign in Europe

Most of the risks mentioned in our previous barometers have materialized :

  • energy crisis in Europe,
  • stubborn inflation
  • and aggressive monetary tightening.

This prompts Coface to significantly revise its global growth forecasts for 2023 : it should be less than 2% as in 2001, 2008, 2009 and 2020.

Moreover, while growth forecasts for all regions of the world have been revised downwards, it is Europe where the outlook has darkened the most, with a recession looking inevitable in all major economies this winter. Indeed, the energy crisis is intensifying and the Old Continent is preparing for “sustained” vigilance, whether in the form of “voluntary” curtailment (stopping activities that are not profitable due to the cost of energy) or rationing adopted by governments. , lower energy consumption will necessarily translate into lower production and lower GDP. Its magnitude will depend mainly on the harshness of the winter, and Germany, the main industrial power of the continent, will be 1.time line.

Still, most of the country risk downgrades this quarter concern European economies. Coface carries out an additional 6 downloads, especially for 3 countries where the risk is still considered very low: Denmark, Switzerland and Luxembourg. Only Norway, a gas producing country, is in a position to benefit from the best risk assessment.

Facing the prospect of persistently high global energy prices, nearly half of the 49 sector downgrades are for energy-consuming industries such as chemicals, paper and metals. However, unlike the previous quarter, when most of the downgrades were on the European continent, this time Coface also downgraded these sectors in most Asian economies or, for example, South Africa.

Central banks are stepping up their fight against stubborn inflation

The realization of the last few months has been confirmedpersistently high and increasingly widespread inflation in developed and developing economies.

In this environment, major central banks remain resolutely hawkish, and most have returned to key interest rates not seen in a decade. So the Fed made 3 consecutive 75 basis point rate hikes this summer. This aggressiveness is prompting increased monetary tightening in other countries, especially developing countries, to prevent their currencies from depreciating against the US dollar.

Such tightening of monetary and financial conditions, if continued at the current pace, would not be without risks to global growth and financial stability.

Three emerging central banks have conflicting monetary policies: Russia, Turkey, and China. As such, China’s monetary authorities have lowered certain benchmark interest rates to support activity, given confirmation of an economic slowdown. This is influenced by the “zero-COVID” strategy, the severe drought recorded this summer and the crisis in the real estate sector. In particular, ills from this sector, which is estimated to account for 30% of GDP, will help Chinese growth in 2022 (3.2%) and 2023 (4.0%) well below the standards of recent decades, leading to a net global slowdown . .

Generalized monetary tightening certainly darkens the outlook for the construction sector globally. Therefore, industrial metals and lumber prices have continued to fall in recent months by 20% and 60% since the start of the year, respectively, leading Coface to downgrade these sectors in several areas.

Conflict of objectives between budget and monetary policy: beware, danger!

Although central banks are determined to fight inflation “at all costs”, many face a conflict of objectives with fiscal policy in their countries/regions. National governments, struggling to combat the slowdown, have actually stepped up measures to support household purchasing power and companies’ cash flow. The result is a potentially explosive cocktail for public finances: widening government deficit and rising fiscal costs.

Find the full quarterly barometer here

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