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.
In 2024, 24 new countries will join the Guided Trade Initiative of the African Continental Free-Trade Area (AfCFTA). With the aim to boost intra-regional trade, the AfCFTA could increase Africa’s revenue and improve its resilience to external shocks. However, beyond tariff barriers, some structural challenges must first be addressed to see the full potential of the largest free-trade area in the world.
Monetary and forex conditions in emerging economies are more favourable in this early part of the year than they were at the end of 2022 and beginning of 2023. The relaxation of monetary policies made possible by lower inflation and upward revisions of growth forecasts have attracted portfolio investment. Despite the increase in geopolitical risk, sovereign risk is likely to reduce except for the most fragile countries, which were already under pressure in 2023. For low-income countries, 2024 will be a high-risk year as governments’ external debt repayments will remain very heavy, just as they were in 2023.
More than 18 months after defaulting on its external debt payments, Sri Lanka’s macroeconomic position has improved, but remains very fragile.
BNP Paribas Economic Research wishes you all the best for 2024. On the macroeconomic front, the highlight of 2023 was the peak in official rates in the United States and the eurozone, but what is in store for 2024?In this video, you can discover the topics and points of attention that will be monitored throughout 2024 for each team: Banking Economy, OECD and Country Risk.
According to the World Bank’s report published last week, the external debt stock of all low- and middle-income countries (LMICs) contracted in 2022, for the first time since 2015. However, this observation does not apply to sub-Saharan Africa (consisting exclusively of LMICs with the exception of the Seychelles): the region’s external debt continued to rise in 2022, reaching USD 832.8 bn, a figure up 2.1% compared to 2021.
In 2023, for the second consecutive year, Malaysia’s external accounts have deteriorated slightly, but are still strong. Over the first nine months of the year, the current account surplus decreased by 18.3% compared to the same period last year. The strong rebound in tourism has not been enough to offset the decline in the trade surplus caused by the global economic slowdown and the sharp contraction in demand for semiconductors and electronic products, which account for 36.3% of the country’s exports.
Nigeria’s economy is fragile. Despite the rise in oil prices in 2021 and 2022, macroeconomic stability has continued to deteriorate. This is due to the low level of oil production, an artificially overvalued exchange rate and the surge in energy subsidies. Without a change in economic policy, the situation was only going to get worse. The new President, Bola Tinubu, decided to act quickly and decisively. Shortly after taking office in May, he announced the flexibilization of the exchange rate system and the end of energy subsidies. Unsurprisingly, the first measure fuelled inflation, which is expected to come close to 30% by the end of the year. More problematic is the fact that we are once again seeing a gap between the official exchange rate and the parallel exchange rate
BNP Paribas Chief Economist William De Vijlder interviews Hélène Baudchon, Head of the OECD Economic Research team; Richard Malle, Global Head of Research at BNP Paribas Real Estate; and François Faure, Head of the Emerging Markets and Country Risk team. They take stock of the global economic situation against a backdrop of inflation, rising interest rates and monetary tightening by central banks. Are we coming to the end of this monetary tightening cycle? What are the impacts on economic growth and financial markets? Have official rates reached a peak in the eurozone or the United States? What influence has the rise in interest rates on the property market? What is happening in emerging countries? These questions will be addressed in three chapters. Enjoy your viewing!
Last week, African heads of state and private sector representatives gathered in Nairobi, Kenya for the first-ever African climate summit. This meeting, organised ahead of COP 28, ended with the signing of the Nairobi Declaration, through which Africa has taken on continent-wide ambitions in the fight against climate change.
Gabriel Boric intends to exceed the goals set up to that point, on a country level, by achieving carbon neutrality before 2050, and on an international level, by developing lithium and green hydrogen production and export capacities.
Even though economic growth in early 2023 was better than forecast for emerging countries, the slowdown scenario is seemingly coming to pass for the rest of the year. In 2024, the strength of the recovery will hinge on the geopolitical climate and on how far monetary policy is eased in the US and the euro zone. It will also hinge on the investment outlook for emerging countries. The UNCTAD’s annual report gives cause for optimism around the investment outlook, except for low-income economies.
The economic rebound that has followed the abandonment of the zero-Covid policy is quickly losing momentum. Domestic demand is held back by a significant fall in consumer and investor confidence, and export momentum is stalling. The authorities are cautiously easing monetary policy, but this may end up having limited effects on credit activity. Further stimulus measures are expected in the short term. They should, among other things, aim to encourage youth employment.
In India, economic growth is holding up thanks in particular to slowing inflation and early signs of an improvement in the labour market. Public finances, which consolidated slightly during the fiscal year 2022/2023, remain much more fragile than five years ago. The government is favouring growth over fiscal consolidation. Capital expenditure continues to increase, even though room for manoeuvre is shrinking due to the high and rising interest payments on government debt. The sharp rise in public investment has improved the quality of infrastructure, which should attract a little more foreign investment
Taiwanese economic activity has slowed sharply since spring 2022. The island is particularly vulnerable to weakening global demand and the downturn in the electronics cycle due to its dependence on semiconductor exports. At the same time, its position as a quasi-monopoly on the most sophisticated microprocessor market probably protects it against the threat of Chinese aggression, at least in the short term. From a strictly macroeconomic point of view, Taiwan has solid fundamentals – and in particular a very comfortable external financial position – that strengthen its ability to withstand external shocks.
Since the presidential and legislative elections in May, the Turkish lira has fallen sharply again and domestic interest rates have increased. Calm has returned in recent weeks with the monetary turnaround of the central bank (CBRT), now led by Hafize Gaye Erkan, and the return of Mehmet Simsek, who in the past has been the AKP government’s guarantor to foreign markets and investors, at the head of the Ministry of Treasury and Finance. But their task of rebalancing a real economy in a state of overheating and faced with stubbornly high inflation is a challenge. More than the recent slowdown in growth, the likely risk of worsening twin deficits must be closely monitored. However, the alarmist analyses that conclude that there is a risk of a balance-of-payments crisis are exaggerated.
Economic activity has weakened significantly in the last three quarters. In Q1 2023, GDP contraction was largely attributed to the drop in domestic demand. For 2023, the scenario of a weak recession seems to be emerging, due to a strong negative carry-over effect. Moreover, prospects for a recovery are weak in the short term, as inflation remains very high and the real estate market is showing signs of weakness. In 2022, budget and current account deficits increased due to the energy shock. However, debt ratios (public and external) worsened slightly. In 2023, external accounts are expected to improve thanks to the easing of commodity and energy prices.
Very dynamic to date, economic growth is now expected to weaken, and the authorities will face several challenges in 2023. Consolidation of public accounts is a priority in the short term, failing which, Romania could be subject to further disciplinary measures by the European Union. Inflation remains high although it has fallen since the end of 2022, which should encourage monetary authorities to favour a status quo. The current account deficit widened to nearly 10% of GDP in 2022, but should ease in the short term due to the drop in energy prices. Despite the size of current account and budget deficits, Romania continues to attract foreign capital flows.
A wind of optimism is currently blowing over Brazil. Brazilian assets recovered strongly in Q2 2023 on the back of reform progress and positive surprises from growth, inflation, the labour market and external accounts. The short-term outlook has also improved. New fiscal measures combined with a softening of energy prices and the prospects of monetary easing in H2 has helped mitigate the expected economic slowdown this year. However, flashing green lights conceal the underlying weaknesses of internal demand as well as differentiated performances across sectors. In the absence of higher revenues, the primary result targets defined by the new fiscal framework is expected to be difficult to achieve.
Chile seems to have made more progress with the energy transition than most Latin American countries. The combination of a favourable geography, significant resources, the aspirations of public opinion and political will has favoured implementation of a number of measures for almost 25 years. Since he came to power in 2022, Gabriel Boric has undertaken to exceed the goals set up to that point, on a country level, by achieving carbon neutrality before 2050, and on an international level, by developing lithium and green hydrogen production and export capacities.
Egypt is heavily exposed to the consequences of global warming due to its Mediterranean geographical location, high population growth and the importance of the agricultural sector. Already deemed critical, water stress is likely to increase in the medium and long term. The deteriorating trend of various vulnerability and resilience indicators, currently at medium levels, is increasing climate risk in the long term. The financial resources of the Egyptian government are extremely constrained, given the deteriorating macroeconomic situation and the unfavourable outlook. Transformation of the energy mix may be partially funded by private capital. However, funding for climate change reduction and adaptation policies, by definition less profitable in the short term, remains problematic.
