In the US, household deleveraging, fixed rate mortgages, rising financial income on the back of higher interest rates and dividends, in combination with an increase in net worth have contributed to the resilience of households in an environment of aggressive monetary tightening. Nevertheless, some caution is warranted. Aggregate data, by construction, do not shed light on the heterogeneity of households. The financially fragile categories will need to be monitored closely in an environment of high rates for longer, in view of possible spillover effects to the broader economy should their situation worsen significantly.
In April, the S&P Global composite PMI index for worldwide business activity rose again slightly (+0.1 points) reaching its highest level since July 2023 (52.4). This rise results from the increase in services, with the associated PMI hitting its highest level since July 2023 (52.7, compared to 52.4 in March). Conversely, the manufacturing index fell slightly in April (50.3, -0.3pp), following three months of growth. However, it is still in expansionary territory.
GDP growth, inflation, exchange and interest rates
In the first quarter, real GDP growth in the United States and the Eurozone was almost on a par, at a quarterly rate of 0.4% for the United States and 0.3% for the Eurozone, according to initial estimates. However, on a year-on-year basis, the situation remains very much to the United States’ advantage, with growth of 3% when Eurozone growth is only 0.4%.
In line with previous months, the recovery in the private sector credit impulse continued in the first quarter of 2024, after the dip seen in the third quarter of 2023. This said, the recovery was slightly slower than at the end of 2023 and the overall trend is still negative. Developments in lending to business are traditionally more volatile over the cycle than those in lending to households. Recent ones have not deviated from this rule: in the autumn of 2023, at a time when the effects of the tightening of monetary policy were at their strongest, the impulse of lending to households did not fall as far, in absolute terms, as that for lending to businesses. Conversely, its recovery since then has been less vigorous
GDP growth, inflation, interest and exchange rates.
Since China's accession to the World Trade Organisation (WTO) in December 2001, the European Union's bilateral deficit with the country has widened from EUR 39 billion to EUR 292 billion in 2023 (Eurostat data). This is by far the largest deterioration recorded by the Old Continent with a trading partner, even though, as a whole, the EU's trade balance with the rest of the world returned to surplus in 2023.
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 recent years there has been a substitution between consumption of goods and consumption of services. This substitution even accelerated after Covid, with inflation accelerating, and is expected to continue in the coming years. Thus, while consumption of goods has declined since the beginning of 2022, this deterioration is partly due to this substitution effect and not to a reduction in household spending, since total consumption is higher than its pre-inflation level (end 2021).
The debate on monetary sovereignty in emerging countries is resurfacing with, on the one hand, the plan of Argentinian President Javier Milei to dollarise his economy, and on the other, the temptation of several West African country leaders to abandon the CFA franc. From a strictly economic point of view, dollarisation is effective in tackling hyperinflation. However, to be sustainable in the long term, it imposes severe constraints on fiscal policy and the nature of foreign investment. Conversely, the abandonment of the CFA franc with the aim of recovering the flexibility of an unpegged exchange rate regime and greater autonomy of monetary policy, is an argument that is either weak in theory or unconvincing in practice, even in the short term.
In the first quarter of 2024, China’s economic growth was stronger than expected and was largely driven by the export-oriented manufacturing sector. Against a backdrop of sluggish domestic demand and strategic rivalries, particularly with the United States, Beijing is further developing its industrial policy to support economic growth and strengthen "national security". Priority is given to the high-tech and energy transition sectors. With considerable support from the government, these sectors are moving up the value chain, increasing their production capacity, lowering selling prices and gaining export market shares. The flood of green tech products is expected to lead to further trade confrontations in the coming months.
The reform policies initiated since Narendra Modi came to power in 2014 are expected to continue with his very likely re-election next June. His economic performance has been positive overall, with robust growth, a strengthening banking sector, a surging investment rate and infrastructural deficiencies being reduced. However, the country is still facing many substantial structural challenges. GDP per capita is still much lower than in other Asian countries (China, Vietnam and Indonesia), the manufacturing sector is barely growing and the country fails to create enough jobs for young people, who are still experiencing very high unemployment rates.
Subianto Prabowo will become the new President of Indonesia on 20 October. He will inherit a strong economy with robust and stable growth (5.1% on average over the last ten years, excluding the COVID-19 period), a low fiscal deficit, moderate public debt and sound external accounts. However, there are major challenges ahead for the new President. In the next decade, the country’s demographic dividend will begin to fade. He will need to adopt reforms more quickly in order to get significantly more young people and women into employment and attract more foreign direct investment. Without this, Indonesia will become an “old” country before it becomes a "high income" country.
On 15 May 2024, Lee Hsien Loong, Singapore’s Prime Minister for the past twenty years, will hand over the reins to his current Deputy Prime Minister, Lawrence Wong. This change in leadership is not expected to alter the highly disciplined management of monetary and fiscal policies, or the government’s economic development strategy, which is aiming, in particular, to adapt the country to climate change and to boost its potential growth. In 2024, economic activity is expected to pick up slightly, notably thanks to the improving global electronics cycle; inflationary pressures should continue to abate, but will nonetheless remain high. Against this backdrop, the authorities are expected to keep monetary policy settings unchanged this year.
Romania recorded a softer economic growth in 2O23 but remained one of the best performing economies in the region. The short-term outlook is strong. The gradual fall in inflation since the end of 2022 should pave the way for an accommodative but cautious monetary policy. The persistence of twin deficits remains a major concern. So far, the country has been able to rely on a certain resilience in capital flows to partly offset the current account deficit. Fiscal consolidation is one of the government's short-term priorities, although there is limited room for manoeuvre this year given the busy electoral calendar. Public debt is sustainable in the short and medium term.
Since the local elections on 31 March, financial conditions have stabilised. Markets reacted favourably to the defeat of the ruling party at local level. The result of the elections is not expected to change the economic stabilisation programme of Finance Minister Mehmet Simsek. The Monetary Policy Committee maintained its key rate at its last meeting in April, a rate which it had raised again in March. Household consumption continues to drive growth, which will remain sustained this year unless fiscal policy becomes very restrictive, which is unlikely. The rebalancing of growth components is underway, although it is not yet sufficient to curb the non-energy current account deficit.
After stagnating in the second half of 2023, economic activity has strengthened in recent months, supported by a surprisingly resilient labor market, amongst other. This good start to the year was however not overtly obvious given the divergence of many indicators. The pace of rate cuts is expected to slow down in the second half of 2024. Monetary easing is indeed coming up against slower-than-expected disinflation and upside risks to inflation expectations. The latter have been dented by the revision of the budgetary targets for 2025-28 and a more pronounced interventionism by the State, anxious to revive investment
Chile’s economic growth stabilised during the second half of 2023, inflation eased and the current account deficit fell. The expected upturn in activity in 2024 should ensure that growth comes close to its potential, driven by household consumption, private investment and mining exports. Political pressures have eased after the decision to suspend the process of adopting a new Constitution (which is expected to be left alone for a number of years). Nevertheless, Gabriel Boric’s government and the opposition parties are still clashing on a number of areas, most notably, fiscal reform, pension system reform and the energy sector framework law.
The economy of the United Arab Emirates (UAE) is still one of the most dynamic in the region. The strong performances are due to the UAE's sectoral diversification and the attractiveness of Dubai to tourists and investors. Despite the tense geopolitical environment, the short-term outlook is bright, as hydrocarbon production is expected to increase and the steady growth in services and real estate is expected to continue. However, geopolitical risk, oil market uncertainties and US monetary policy are all factors that could threaten this outlook. Uncertainty about the pace and scope of the low-carbon transition is making the longer-term outlook much more uncertain
The South African economy narrowly avoided recession at the end of 2023. The poor quality of the country’s infrastructure is significantly slowing down activity. In addition, the government lacks fiscal leeway and disinflation is slow and uneven, forcing the central bank to maintain its restrictive monetary policy. Faced with numerous macroeconomic challenges, the African National Congress (ANC) has initiated long-awaited reforms, but at a pace that is deemed insufficient. It is likely to pay the price at the general elections in May and lose its absolute majority in Parliament for the first time in its history. The choice of the party with which to form a coalition could disrupt the momentum of reforms and the trajectory of public debt.
In Morocco, the latest GDP growth and inflation figures were better than expected, but the latest drought in the country undermines its economic recovery. Regional instability is another real risk to bear in mind. However, the country's adequate economic policy management and solid fundamentals remain supportive factors of macroeconomic stability.
At a time when Senegal is preparing to launch its gas and oil production, the reconfiguration of the political landscape is generating immense hope among the population. The opposition candidate, Bassirou Diomaye Faye, won the presidential elections in the first round on the back of a breakthrough project. But the challenges ahead are huge, especially on the employment front. Despite a decade of robust growth, the economy has undergone little transformation and suffers from low productivity gains, which it will be difficult for the sustained investment effort to continue to mask, given the now high level of debt.
According to the IMF’s latest Fiscal Monitor, between 2023 and 2029, many advanced economies are projected to see an increase in their public sector debt to GDP ratio. The US ranks second in terms of increase of the public debt ratio (+ 11.7 percentage points of GDP). Administration and Congress will have no other option than to structurally reduce the budget deficit. However, the challenge will be huge given the unpopularity of tax increases, the difficulty of cutting expenditures and the major headwinds of rising interest charges and, in the medium run, slower GDP growth. Whether the US manages to bring its public finances under control also matters for the rest of the world, given the central role of the US Treasury market and the US dollar in the global financial system
L’Organisation mondiale du commerce (OMC) a publié en avril son dernier jeu de prévisions dont le message est plutôt positif1. Après un repli de 1,2% en 2023, le volume des échanges mondiaux en biens rebondirait de 2,6% en 2024, une progression peu ou prou en ligne avec la croissance de l’économie mondiale, attendue par l’OMC à 2,7%. Parmi les principaux soutiens au commerce mondial, l’organisation de Genève met en avant la baisse anticipée de l’inflation en 2024 et 2025. Celle-ci permettrait de soutenir le pouvoir d’achat et, par conséquent, la consommation de biens manufacturés.
