In Chile, the recovery in economic activity seen in 2024 is expected to continue in 2025. Commodity exports will remain strong, while private consumption will benefit from slowing inflation and a gradually improving labour market. Against a political backdrop marked by ongoing tensions, and an opposition coalition strengthened by the results of recent local elections, the government is trying to press ahead with its flagship reforms, relating to the energy sector in particular, before the end of its term, which will be in late 2025. Against this backdrop, public finances are still being gradually consolidated, at a slower pace than initially anticipated.
In Central Europe, economic activity slowed in Q3 2024. Over the first three quarters, the Polish economy performed better than its neighbours. In the region, inflation has picked up again and a return to the inflation target is not expected until 2026. With the exception of the Czech Republic, all Central European countries are under excessive deficit procedure. Moreover, several countries have tapped international capital markets. This is accompanied by a higher currency risk, but generally, Central European countries have adopted a cautious management of foreign currency debt. Meanwhile, capital flows rebounded in Q3. The region remains an attractive destination for short-and medium-term capital flows.
In 2024, Hungary is expected to be among the region’s worst performing economies, entering a technical recession in Q3. Real GDP growth is one of the government’s priorities, with an official target of 3% to 6% next year. The budget for 2025 recently submitted to Parliament aims at both revitalising the economy and consolidating public accounts. However, medium-term potential growth, estimated at 3% by the IMF, has been revised upwards compared to its 2019 estimate. In particular, it is buoyed by favourable prospects for FDI, particularly from China, which would support investment.
Since July, the three main rating agencies have upgraded the Turkish government's medium-term and long-term debt ratings. Macroeconomic fundamentals have really improved over the past twelve months, despite the tightening of monetary policy and the resulting slowdown in growth due to positive real interest rates for households and businesses. The slippage in the core budget deficit is still under control and the debt ratio is at an all-time low. The current account deficit has fallen sharply and the recovery in portfolio investment has helped with rebuilding official foreign exchange reserves. Finally, the de-dollarisation of bank deposits has continued and bank credit risks are generally under control
Although tensions in the Middle East and the geopolitical risk have risen sharply since October 2023, there have been contrasting developments in the maritime trade and energy markets. While the cost of some freight categories has risen, oil prices have fallen, mainly due to abundant supply. An escalation of the conflict is still a possibility and would drive energy prices higher. In an already tense market, the price of LNG on the European market is particularly sensitive to the geopolitical context. It is against this backdrop of geopolitical tension and depressed oil markets that the Gulf countries are seeing their financing requirements increase. Furthermore, as part of their diversification policy, they need a peaceful regional environment, particularly in the Red Sea.
In 2024, Angola’s economic growth struggles to bounce back significantly. The non-oil economy is facing multiple headwinds, while the hydrocarbon sector is seeing a moderate return to growth. Despite large current account surpluses, pressure on external accounts has remained strong since resumption, in 2023, of the servicing of the external debt owed to China. The kwanza continues to depreciate against the dollar, which is severely deteriorating the State’s solvency. The noose tightens on the government. It is facing ever-higher external debt repayments at a time when the risk of depletion of Chinese capital inflows is higher.
The economy continues to hold up. A new period of drought will affect growth in 2024, but non-agricultural activity remains sustained. Investment is recovering sharply and the rapid drop in inflation is buoying household consumption. The country's macroeconomic stability is not under threat. Another cause for satisfaction is the surge in FDI project announcements. Ideally located and providing undeniable advantages against a backdrop of geoeconomic fragmentation, Morocco seems to be taking advantage of the reconfiguration of global value chains. The impact could be considerable. Nevertheless, more will probably be needed to contain rising unemployment.
Much has happened since Q4 Outlooks published in September cheeringly predicted, as a matter of consensus, that the global economy was heading for a soft landing after the sharpest inflation surge and most abrupt monetary tightening in decades. On the economic front, more data have been released, helpfully adding pixels to the growth, labour market and inflation pictures. On the politics and policy fronts, China unveiled a large stimulus package, the US voted in a new President and Congress, the UK released a radical 2025 budget, and France and Germany limped into new governing arrangements.
Activity indicators for October showed encouraging signs of accelerating growth. The support policy measures implemented by the authorities are finally beginning to bear fruit. However, the improvement is not widespread, as deflationary pressures persisted and credit growth continued to weaken.
GDP growth, inflation, exchange and interest rates.
Equity indices, Currencies & commodities, and Bond markets
While the German economy continues to underperform and France remains in a middle ground, Southern European countries have become the driving force behind economic momentum in the Eurozone.
The economic slowdown in China and the implementation of its industrial policy will have large consequences for the rest of the world. Effects will vary from country to country, depending on the transmission channels. For emerging countries, the overall impact will not be necessarily negative, notably thanks to the foreign direct investment channel, which could well change the situation. We are discussing this with Christine Peltier.
Last week’s news made for grim reading for many in Europe. First came the choice by our American friends to bring back to the White House a man who said just weeks ago that the EU would have to “pay a big price” if he won. Then the German governing coalition collapsed. Following factory closure announcements by VW in Germany a week before, the two largest German banks reported massive increases in their provisions for bad loans. Meanwhile, in France, lay-offs were announced by two high profile French companies in the automotive industry but also in retail a sector hitherto thought to be fine
Key figures for the French economy compared with those of the main European countries, analysis of data on the population and the French labour market, activity by sector, publication administration figures, inflation, credit and interest rates, corporate and household accounts.
In France, in Q3 2024, for the first time (statistical series dating back to 1949), non-financial companies invested more (in billions of euros, at constant prices) in "information and communication" than in construction. This shift was bound to happen sooner or later, given the trend towards intangible investment (in which "information and communication" is the main item). In particular, this growing weighting goes hand in hand with the increasingly widespread use of electronics and software in today's goods, including in traditional sectors such as the automotive industry.
The outcome of the US presidential elections on 5 November will decide the extent of the protectionist turn taken across the Atlantic. However, global exports have so far resisted the rise in tariff barriers. By the end of the decade, the IMF forecasts growth in exports of goods similar to or even slightly higher than that of world GDP. Tighter protectionist measures will affect global growth, but the effects on international trade will be more nuanced.
GDP growth, inflation, interest and exchange rates.
According to recent economic data, the disparity in economic situations is confirmed, and even accentuated, between the United States, where growth is expected to remain strong in Q3 (0.7% q/q in Q3, according to our forecast) and other regions, notably the Eurozone, where the recovery is seemingly running out of steam (0.2% growth in Q3, according to our forecast and our nowcast).
The gradual improvement in household confidence indices in the Eurozone (financial situation and purchase intentions), supported by falling inflation, is still not leading to a rebound in consumption. Retail sales have been stable for a year, even though a slight rise of 0.2% m/m was recorded in August. Motor vehicle sales, which often display a significant change from one month to the next, rose by 8.2% m/m in September, but were down to their lowest level in three years on a three-month moving average basis.
The business climate in Germany (PMI and IFO surveys) deteriorated steadily from its peak in May to September. The relative optimism of the spring has ebbed away, as illustrated in particular by the deterioration in the PMI for export conditions (standing at 49.8 in September, compared to 51.9 in May). As a result, while our forecast for Q3 growth remains at 0.1% q/q, the German government has highlighted the risk of another negative figure (following the rate of -0.1% q/q in Q2 already) and therefore of a recession. Overall, GDP is likely to be close to its level recorded at the end of 2021 (i.e. three years of stagnation).
The Olympic Games were a brief positive interlude, which has now come to an end, as shown by the services PMI, which peaked at 55 in August in the midst of much more lacklustre performances. However, this Olympic Games effect should have buoyed growth in Q3 (0.4% q/q, according to our scenario). Our nowcast is a little lower (0.3%) and highlights the risk that, excluding the Olympic Games effect (estimated at 0.2% by INSEE), the French economy slowed in Q3 (after 0.2% q/q growth in Q2). It is likely to slow further in Q4, judging by the recent deterioration in the services sector (PMI at 48.3 in October after 49.6 in September) and in industry (production PMI down from 44 to 42.5).
