2024 was marked by further progress in disinflation, in both the United States and the Eurozone, sufficient to pave the way for rate cuts. However, 2025 may be quite different from 2024, with expected divergent inflation trajectories between the United States and the euro area and, therefore, a decoupling of monetary policies (extended status quo for the Fed, continued gradual rate cuts for the ECB).
The year 2024 is coming to an end, but political and economic uncertainties persist and are expected to continue into 2025, albeit in new forms. Donald Trump’s economic agenda is known. On the other hand, the measures that will actually be implemented, their timing and their economic impact are among the great known unknowns of 2025. In any case, uncertainty itself is expected to be a major drag on growth next year. A convergence of growth rates between the US and the Eurozone is expected in the course of 2025, via a slowdown in US growth. The latter would suffer from the inflationary effects of Trumponomics and the resulting more restrictive monetary policy, with the Fed's expected status quo on rates throughout 2025
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%.
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Since 2019, private sector debt in emerging countries as a whole has risen as a percentage of GDP, while at the same time private sector debt in advanced countries has fallen. However, a country-by-country analysis shows that China alone is responsible for this increase and that, even excluding China, debt ratios show positive aggregation effects. In fact, on the basis of median ratios and credit gaps, excluding China, the private sector has develeraged in a large number of countries, until the third quarter of 2024. Current and future economic and financial conditions point more to a continuation of the decline than to a rebound.
Would you expect a politician who promises to raise taxes on both households and corporates as a key plank of their growth strategy to get elected? Or the Parliament of an EU member state to vote against an EU initiative to cut such taxes? Probably not. And yet both just happened, with Donald Trump and fellow Republicans taking control of both the White House and Congress, and the French Parliament voting against the EU-Mercosur trade deal.
The election of Donald Trump has not triggered any major financial tensions in the main emerging markets. Nevertheless, the dollar has strengthened, which should delay the easing of monetary policies. More worryingly, emerging economies will be the direct or collateral victims of the trade war promised by the incoming United States administration. They will face a double shock: a sharp slowdown in global trade and the re-routing of Chinese exports. The first shock is bound to be recessionary or even inflationary. The impact of the second is not clear cut as it hinges on the types of Chinese exports (complementary or competing) and, most of all, on their link with direct investment.
In China, economic policy has taken a firmly expansionary turn since late September. This has given a boost to activity, which is expected to strengthen further in the very short term. However, over 2025 as a whole, economic growth will continue to slow. The constraints weighing on domestic demand persist, as the adjustments in the property sector are not yet complete, private sector confidence remains fragile and households are waiting for conditions in the labour market to improve. In addition, the risks to growth have increased with the election of Donald Trump. China will be able to respond to new US customs barriers in various ways, ranging from retaliatory measures to depreciating its currency and continuing to re-route its trade flows
The difficult recovery in economic activity experienced over the past two years reflects all of the constraints on the Hong Kong economy. Monetary policy, which must follow the United States' monetary policy, was restrictive until September 2024, with particularly painful consequences, as inflation in Hong Kong remained moderate and domestic demand, conversely, needed support. The economic cycle is much more in sync with mainland China's economic cycle. In the very short term, economic growth is expected to accelerate, supported by ongoing monetary easing and the expected strengthening of Chinese demand. In the medium term, Hong Kong’s prospects hinge on its continued economic and financial integration with mainland China.
Indian economic growth slowed in the first quarter of the current fiscal year and leading indicators suggest that it will stand at 6.9% over the fiscal year as a whole (vs. 8.2% last year). There are a number of risks to GDP growth, but they remain moderate. Apart from rising inflationary pressures, which could delay the expected monetary easing in December, the slowdown in foreign demand is the main risk. Weakening Chinese demand, in particular, may hinder the development of India’s manufacturing sector, which is already undersized due to competition from Chinese consumer and capital goods at increasingly competitive prices. While India’s growth is the highest among emerging countries, it clearly cannot supplant China as the engine of global growth
Economic growth remains solid, but it is expected to slow down in 2025. Due to its very open economy, Malaysia is more vulnerable to the slowdown in China than India or Indonesia. In addition, tensions between the United States and China could make it more complicated to implement its New Industrial Master Plan, a key pillar in the country’s efforts to revitalise growth. The authorities have limited room for manoeuvre in order to support the economy. The Central Bank of Malaysia is expected to leave its key interest rates unchanged over the next six months, unlike other central banks in Asia. Inflation risks are on the upside due to the abolition of energy subsidies and wage increases. In addition, fiscal consolidation, which began two years ago, is hurting investment spending.
Brazil's macro-financial portrait is one of striking contrasts: on the one hand, unemployment is at an all-time low, external accounts exhibit a notable resilience, and economic growth continues to outperform expectations as it draws on multiple levers ; On the other hand, the currency has continued to weaken, residents have increased their holdings abroad, and risk premiums have widened – as defiant markets call for additional measures to curb public spending. The Central Bank – bucking the global trend – has initiated a phase of monetary tightening in response to rising inflation. The latter has witnessed upward pressures on both the supply and demand side in recent months
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.
