This comprehensive overview highlights Europe's promising economic start to 2024, Switzerland's resilience, and the broader global economic landscape, emphasizing the need for strategic financial and policy measures to sustain growth amidst ongoing challenges.
Economic Overview of Europe in 2024Robust Start and Positive Outlook
Europe is experiencing a surprising economic uplift. The Eurozone's GDP saw a 0.3% increase in the first quarter of 2024, adjusted for price and seasonal effects. Although France and Italy show modest growth, they maintain momentum. Spain, despite losing some of its high-level momentum, remains strong. Germany is expected to see a slight economic recovery, noticeable in the latter half of 2024 and reflected in the 2025 annual growth rate. Private consumption in Germany, bolstered by significant real wage growth, is a crucial driver of this recovery. Additionally, the ECB's anticipated interest rate cuts are set to improve financing conditions and boost investment.
Portugal and Spain Leading in Economic Improvement
Portugal and Spain exhibit marked economic improvements, benefiting from substantial wage increases and robust tourism revenue. Despite a general decline in consumer confidence across Western Europe, the demand for travel remains strong, partially as a post-pandemic recovery effect. These factors, coupled with increased investment propensities supported by EU programs, have led to an upgrade in country risk to A2 for both nations, putting them on par with the Netherlands and Belgium. Meanwhile, Norway, Denmark, and Switzerland retain an A1 rating.
Switzerland's Economic Resilience
Strong Start and Investment Growth
Switzerland demonstrated a robust economic performance, with a 0.5% GDP increase in Q1 2024. This growth is driven by solid private consumption and strong investments. Although foreign trade posed a challenge initially, it is expected to improve significantly, particularly with the inclusion of international sporting events like EURO 2024 and the Olympic Games in Swiss service export statistics. Despite a slight inflation rise to 1.4%, Switzerland's inflation rate remains below the 2% target, allowing room for further interest rate cuts, which would enhance financing conditions for both individuals and companies.
Sector-Specific Insights
The energy sector in Switzerland has seen a positive revision, moving from medium to low risk. This shift is attributed to the strong performance of large, canton-owned energy companies during the European energy crisis, enabling them to expand margins. However, corporate insolvencies in Switzerland continue to rise, reaching the highest levels since 2007.
Global Economic Context
Global Growth and Risks
The global economy showed slight improvement in Q1 2024, recovering from the pandemic, the Russia-Ukraine conflict, and the US banking crisis. While US economic activity has slowed, emerging markets drive global growth. The global GDP forecast for 2024 has been upgraded to 2.5%, with stabilization expected at 2.7% in 2025. Despite this, global economic, social, and political risks persist, including the dissolution of the French National Assembly.
Disinflation Challenges
The US faces challenges in disinflation, particularly with high service and housing costs. The PCE1 inflation rate stands at 2.7%, above the Fed's 2% target. In Europe, inflation rebounded to 2.6% in May 2024. Rising wages may boost consumption but could also hinder further disinflation, potentially leading to a deterioration in the labor market and corporate margins and increasing insolvencies.
Emerging Economies and Trade Dynamics
Emerging Markets and Monetary Policies
Emerging economies are poised for acceleration but are constrained by the Fed's cautious stance on interest rate cuts. While the ECB has begun monetary easing, emerging markets have had to slow their rate-cutting cycles to avoid inflation through imports. Brazil, for example, cut its key rate by just 25bp in May, after 6 consecutive 50bp cuts. The Fed's postponement will also condition monetary policies in Africa and Asia. The central banks of the main emerging economies have not yet begun their monetary easing, limiting the scale of their economic rebound for 2024 and 2025.
Despite this delayed timetable, Southeast Asian countries like Vietnam and the Philippines are expected to achieve growth rates exceeding 6%. India is set to achieve a 6,1% growth, in spite of a slight slowdown. The African continent is also set for robust growth, with key economies (Nigeria, Egypt, Algeria, Ethiopia, Morocco and, to a lesser extent, South Africa) exceeding a 4% growth.
US customs barriers and trade Tensions
The announcement on May 14 of a sharp rise in customs duties on imports of Chinese goods confirms the United States' determination to counter China in its strategic sectors. Last week, the European Union adopted similar measures, imposing additional tariffs of up to 38% on Chinese electric vehicles. Countries such as India and Brazil have already taken similar steps, increasing the risk of global trade tensions. This context could make Mexico and Vietnam the main beneficiaries of this reorganization, thanks to the transshipment of Chinese products. Although trade links between the USA and China appear to have weakened, it would be premature at this stage to conclude that the two powers have decoupled.
In addition to the current administration's decision, candidate Trump's campaign promises to implement global tariffs of 10% are fueling concerns surrounding US trade policy, while heightening fears of fragmentation in global trade.
In an increasingly uncertain geopolitical context, an escalation of customs barriers would mean higher costs for businesses, contributing to the risk of a more inflationary future.
1- The PCE (Personal Consumption Expenditures) index is the US Federal Reserve's preferred inflation barometer. PCE takes into account price data supplied by companies, not consumers.
