The impulse of bank lending to the private sector continued to recover in the Eurozone in Q4 2024 (1.5 after between 1.1 and 1.2 since September 2024). It was back in positive territory since August (0.8), and in December 2024 it reached its highest level since November 2022 (2.7). The ECB bank lending survey in the Eurozone confirms the recovery in the demand for loans in Q4 2024. However, political uncertainties have resulted in a tightening of credit standards for lending to companies in France and Germany.
Energy policy was at the top of the agenda during the election campaign and in the first few weeks of the Trump presidency. Its objectives are to reaffirm America's domination of the global hydrocarbon market (the United States has been the world's leading oil producer since 2019) and to ensure low prices for US consumers. In practice, this is manifesting in a desire to increase US oil and gas production by three million barrels of oil equivalent per day, for an average crude oil production of over 13 million b/d in 2024. But is this goal realistic?
The first FOMC meeting of 2025 (28-29 January) should result in the target rate being held at +4.25% - +4.5%. In our view, this would mark the beginning of a pause lasting until mid-2026, due to the anticipated pick-up in inflation that would result from Donald Trump's economic policy.
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On 20 January 2025, Donald Trump once again became President of the United States. With a ‘clear mandate’, the Republican intends to harness his victory by addressing his favourite issues. His return to the Oval Office comes at a time when the dollar is witnessing one of the biggest rallies in history. The real effective exchange rate of the greenback is now at a comparable level to the one which led to the Plaza Accord of 1985, and its appreciation has a high likelihood of continuing. This trend is likely to frustrate the new President, who is keen to denounce weak currencies as penalising US industry
“Not all died, but all were stricken”. While the Covid-19 pandemic spared no one, its consequences, particularly on the budgetary front, were not the same for everyone.
The global economy faces a long list of uncertainties -growth, inflation, interest rates, political, geopolitical, tariffs, etc. When uncertainty is exceptionally high, as is the case today, the economic environment becomes intrinsically unstable and may evolve suddenly and drastically. This acts as an economic headwind because companies that are highly exposed to these sources of uncertainty may postpone investment and hiring decisions. This may weigh on household confidence, triggering a reduction in discretionary spending. Financial markets may also become more volatile because investors shorten their investment horizon. There is a clear urgency of creating a predictable policy environment.
While the Bank of England's (BoE) decision to keep its key rates unchanged at 4.75% on December 19th was in line with market expectations, the vote by three MPC members in favour of a 25 basis point cut was less so. This week, which has had a wealth of economic indicators in the UK, will certainly have shifted the lines, between rising inflation in November and heightened fears that an overly restrictive monetary policy could derail the economic recovery. Indeed, the BoE has revised its growth forecast for Q4 downwards, from 0.3% to 0.0%.
The Fed ended the year with a reduction in its target rate (-25 bp), which now stands at +4.25% to +4.5%. Meanwhile, median expectations by committee members of the number of cuts fell from four to two for 2025. The response from the financial markets was abrupt.
Despite negative net long-term public debt flows over the period 2021-2023 (see chart), China remains the top lending country to Sub-Saharan African states, ahead of France, the UK and the US. However, long-term public debt owed to China contracted by 4.5% in current dollars between 2019 and 2023, while debt owed to all creditors increased by 15.6%.
The election of Donald Trump as President of the United States has raised fears that protectionist measures will be stepped up. Customs duties would be applied to all products from all of the United States' trading partners. In addition to China, the main country targeted, concerns about the macroeconomic and financial consequences of such a policy have risen sharply in Mexico.
In Spain, Italy and Portugal, the five largest banking groups recorded, on average and on a consolidated basis, an annualised return on average equity (ROAE) of 15.0%, 15.6% and 18.1%, respectively, in the first three quarters of 2024. These are levels not seen since 2007.
The presidential election on 5 November is associated with underlying but potentially decisive economic issues.Political aspects: The election pits Vice President Kamala Harris (Democrat) against former President Donald Trump (Republican). The winner will take office on 20 January 2025. The election looks set to be particularly closely contested, despite the momentum in Donald Trump's favour at the end of the campaign. At the same time, voters will be deciding on the composition of the next Congress, which will significantly affect the new administration's room for manoeuvre.Economic context: The vote comes against a backdrop of an apparently stronger economy. This is illustrated by solid macroeconomic performances, despite recent shocks, which are seemingly auguring a soft landing
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.
In the United States, economic policy uncertainty, based on media coverage, picked up again in September, after a brief decline in August. This increase is due to the political uncertainty in the country in the run-up to the presidential elections on 5 November.
The Italian real GDP over the past three years is higher than previously estimated, thanks to the 2024 general revision of the national accounts. This revision, which is undertaken every five years and was published by the Italian National Institute of Statistics (Istat) on 23 September, includes the basis change with reference year 2021. As a result, real GDP is finally, albeit only slightly, above the level posted before the 2008 financial crisis (0.6 pp higher in Q2 2024 than in Q4 2007).
Economic indicators for August 2024 once again show that Chinese economic growth is lacking strength. The real GDP growth target of “around 5%” set by Beijing for 2024 can only be achieved with a stronger impetus generated by monetary easing and fiscal expansion.
Uncertainty around US economic policy, based on media coverage, fell for a second month in a row in August. This drop is likely due to Jerome Powell’s speech on 23 August at Jackson Hole, where the Chair of the Federal Reserve stated that the time has come for policy to adjust, meaning it is time to lower rates. This announcement echoed the views of some Fed officials, as expressed in the Federal Reserve’s minutes published on 21 August.
The newly elected Labour Party has set a target of 1,500,000 extra homes in five years, or 300,000 a year, in an attempt to stem the crisis in England's housing sector. This is not a new figure; it was already the one put forward in the Conservative Party manifesto when Boris Johnson was elected in 2019.
After a rebound to +1.5% q/q in Q1 2024, Chinese economic growth slowed to +0.7% q/q. It stood at +5% year-on-year in the first half of the year. The economic growth target of “around 5%” set by Beijing for 2024 remains achievable.
The Italian economy has seen strong recovery since the end of the Covid-19 pandemic. Since 2021, its annual growth has far exceeded that recorded on average in the eurozone, thanks to the implementation of expansionary fiscal policies, which have buoyed consumption and investment, and the gradual recovery of tourism. Since the beginning of 2023 however, economic activity has started to moderate, due to an unfavourable international environment and the gradual abolition of these fiscal measures. In addition, the latter have, by their very nature, impacted the State's public finances, placing the country under the European Commission's excessive deficit procedure (EDP) in June 2024.
The S&P Global PMI surveys are a key input in the assessment of the cyclical environment. Judging by the manufacturing PMI, many countries have seen a weakening of momentum in the second quarter of 2024 versus the first quarter. However, for most countries, the level of the PMI in June is still higher than in December 2023. Moreover, 17 countries out of 31 still have a PMI of 50 or higher, which reflects ongoing growth in economic activity. Focusing on the Eurozone and using the composite PMI to take into account the important role of services, it is reassuring to see that in June, although dropping from the 52.2 level recorded in May, the composite PMI was still in ‘real GDP growth territory’ at 50.9
In the US, uncertainty about economic policy, based on media coverage, rebounded in June after a brief dip in May. The June increase was probably related to the climate of political and monetary-policy uncertainty in the US a few months from the presidential election.
In the United States, economic policy uncertainty, based on media coverage, fell slightly in May, after increasing for two months in a row. This drop can probably be attributed, at least in part, to the encouraging fall in inflation in April and May, which is feeding expectations of interest rate cuts by the Fed.
Faced with a significant increase in official interest rates, companies have been surprisingly resilient. Can this last in an economy which is bound to slow given the ‘high policy rates for longer’ environment? The Federal Reserve’s latest Financial Stability Report gives some comfort based on a comparison of corporate bond yields and spreads to their historical distribution. Moreover, resilient earnings imply a robust debt-servicing capacity. Does this assessment hold in a stress test scenario? A recent analysis of the Federal Reserve concludes that the debt-servicing capacity of the U.S. public corporate sector as a whole is robust to sustained elevated interest rates, unless in case of a severe economic downturn
