Global Economic Outlook – April 2024

Cyclical turning points both for European growth and across major developed economy central banks

Commentary: 

“We are cautiously hopeful at the start of Q2. Developed economies, particularly those in Europe, are starting to realize that the worst of the downturn is behind them, and their central banks are gearing up to loosen their monetary policies, setting the scene for a meaningful recovery in the second half of this year. Emerging economies will drive growth this year but must contend with policy loosening in the developed world. Businesses tell us that they are becoming increasingly optimistic about prospects, though ongoing elections, geopolitical conflicts, and lagged effects of tight policy will shape commercial outcomes, further underlining the need for pragmatism and sound reasoning in an uncertain global landscape,” said Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet.

Introduction

At the start of this year, we were optimistic about the global economy’s prospects – and we still are as we head into Q2. Healthy growth, particularly in the U.S., and the loosening of financial conditions owing to expectations of easing monetary policy in the U.S., the U.K., and the eurozone have somewhat improved macroeconomic conditions.

We believe that the worst is behind the European economy and that it is potentially beginning to show early signs of a cyclical turning point. Much of what has subdued growth – very high energy prices, soaring inflation, subdued confidence, and tight financing conditions – is diminishing and will likely ease further through the year. Underlying price pressures remain high but are falling. The European Central Bank (ECB) is set to start easing its monetary policy during Q2 2024, which has already increased optimism among businesses, driving a modest rise in hiring. Though the path to recovery will be bumpy, the outlook looks brighter than it has for some time. This indicates that economies are, by and large, holding up better than projected. Markets have reevaluated the path for interest rate cuts and aligned expectations around a new consensus that major central banks will begin to start a period of looser monetary policy around mid-year.

Across Europe, GDP growth is set to accelerate this year, although from relatively low bases.  We are unlikely to see a sustained deceleration in Germany even though output may contract slightly in Q1, which would tip the economy into recession. Tight fiscal policy in the form of the German constitutional debt brake, which limits new debt issuance, will hold back growth. Compared to Germany, the Italian, French, and Spanish economies are expected to perform relatively better. 

Comparatively, growth in the U.S. this year will soften but is still likely to grow more as quickly than some large European economies. We expect the U.S. to grow 1.5% in 2024, compared with 0.6% in Germany and 0.9% in UK, while France is set to grow by 1.2%. The monetary policy responses of the ECB and the U.S. Federal Reserve over the past couple of years have been reasonably similar, and the path to lower rates is likely to be somewhat comparable. The Fed’s dual mandate of full employment and low inflation appears to be increasingly better balanced. We expect that the current disinflationary trend in the U.S. will continue, allowing the Fed to cut rates later in the year. 

However, the Bank of England (BoE) may be the first out of the gate. The inflation path in the U.K. is unlikely to develop to be materially different from that in the U.S. or Europe, and the BoE is likely to consider Q2 an equally strong starting point. In the March meeting of the Monetary Policy Committee, the BoE sounded increasingly optimistic about the U.K. economy and the direction of inflation. In addition, the BoE recently indicated that it would not necessarily wait for inflation to fall below its 2% target to begin loosening policy. Regardless of precise timing relative to one another, our expectations put the U.S., Europe, and the U.K. on course to have a more monetary-policy-supportive business environment in the second half of this year. However, they will be keeping a close eye out for any signs of returning inflation.

Headline inflation moderating in key developed economies provides Q2 rate cut rationale

Source: Haver Analytics, Dun & Bradstreet.

Central banks are not gearing up to cut interest rates everywhere. The Bank of Japan has ended its eight-year period of negative interest rates, raising the overnight policy rate to a range of 0-0.1%, from -0.1% to 0%. The move ends Japan’s period of ultra-loose monetary policy, implemented to stimulate inflation and drive economic growth. Negative interest rates up to now will have supported ‘zombie’ businesses – corporates surviving by not paying off debt – but positive nominal rates will now edge these firms closer to insolvency. The central bank’s intervention may also bring greater volatility to the yen, which could deter foreign investors. 

Emerging economies are likely to drive global growth. However, they will still have to contend with the lagged effects of high interest rates and there is likely to be variation within this group of countries. Growth is likely to be driven by economies in Asia, including India, Vietnam, Indonesia, and the Chinese Mainland. We expect that regional growth will be broadly in line with that of last year and also expect economies such as South Africa to perform better this year than last, as hopes are high that the long-standing problem of inadequate energy infrastructure will be addressed. Latin American growth will likely be pulled lower this year by a softer outturn in Brazil, despite the central bank’s easing already coming to fruition. Economies more closely coupled with the U.S. are likely to perform better than those integrated with the eurozone. 

The Q2 2024 Dun & Bradstreet Global Business Optimism Insights report suggests that businesses around the world are preparing to turn the corner. We have seen a gradual rise in optimism as the most negative expectations of downturns have not materialized. In our current survey, for the first time since the series started in early 2023, businesses have shared a favorable view on input cost pressures, and moreover, businesses are coping well with relatively tight financial conditions. Our survey has again indicated that confidence in supply chains remains shaky, mainly due to the forced rerouting of shipments on the back of geopolitical events. Additionally, most companies said they felt the biggest impact of recent geopolitical events by way of delays to or cancellation of investment plans. 

We recommend caution for businesses. We see enough in the data to be hopeful about economic prospects in parts of the world, and the businesses surveyed around the globe are also growing more optimistic. But, as highlighted, the strength of recovery is far from certain and is likely to be uneven. Businesses are continuing to deal with circumstances beyond their control, mainly due to supply chain disruption, the fallout of election-induced policy shifts, the timing and magnitude of lower borrowing costs, and the lagged effects of tighter policy. 

Q2 2024 Dun & Bradstreet Global Business Optimism Index reveals greater confidence about macro environment

Source: D&B; data collected through D&B Global Business Optimism survey conducted mid-February ‘24 to mid-March ‘24, upper right quadrant implies higher and increasing optimism relative to the global average

Regional Summaries

Emerging economies, especially in Asia, offer some of the best growth opportunities globally

Source: Haver Analytics; Dun & Bradstreet 

North America 

After charting divergent courses through late 2023, the U.S. and Canada are likely to begin narrowing the gap between their economic performances in 2024. This is likely to be achieved through an improvement in Canada’s economic outlook, coupled with a mild pullback on the U.S. growth outlook. Taken together, retail sales in the region dipped in Q1 2024, suggesting a weakening in the U.S. consumption story in addition to the pre-existing weakness in Canada. This comes on top of a weakening credit impulse across the region, given high interest rates.  

Across the region, inflation broadly remains on a downtrend, especially on a y/y basis, as the monetary policy remained unchanged in Q1 2024.  Rate cuts are now expected in mid-2024, but the economic environment for rate cuts toward the end of Q2 seems far more conducive in Canada than in the U.S. Unemployment rates in the region marginally ticked higher in Q1, though they are still low by historical standards, and wage growth also marginally moderated. Worryingly, bankruptcies across the region witnessed a sharp jump in 2023, a trend that is likely to continue in H1 2024. Beyond that, the degree of easing of financial conditions is likely to be a key driver for bankruptcies across the region, though as of today, the case for significant easing remains weak.

Western & Central Europe 

The European economy entered 2024 on a weaker footing than expected, with the eurozone recording zero growth in Q4 2023. Since then, the eurozone’s growth engine, Germany, has been posting data that may be consistent with a slowing or bottoming out of the downturn. And though the eurozone economy remains weak, inflation has continued to fall and the ECB has moved closer to a looser monetary policy. At its March meeting, the ECB acknowledged that underlying inflation had eased but price pressures remained high due to strong wage growth. The focus for businesses has shifted to how many rates cuts to expect this year. ECB President Christine Lagarde said that by April, the bank would know a little more and even more so by June, hinting that a drop in borrowing costs may begin by the European summer.

The U.K. may similarly be at a turning point. Real GDP grew 0.2% m/m in January, the first uptick in economic output since the recession in the second half of last year. Inflation continues to trend downwards, with the BoE offering a more optimistic view on the economy and prices at its March monetary policy meeting. This implies that businesses may benefit from interest rate cuts and lower borrowing costs sooner rather than later. The budget, announced on March 6, delivered a GBP0.02 reduction in National Insurance contributions, lower property tax, and improved benefits for households. Businesses are set to find value from an enlargement of the full expensing scheme to include leased assets, the extension of the recovery loan scheme, and an increase in the value-added tax (VAT) registration threshold. Additionally, the government has pledged to save costs for small and medium-sized enterprises (SMEs) by cutting regulation and offering financial help to recruit apprentices. 

Contributions to Eurozone real GDP growth q/q (% points)

Source: Haver Analytics, Dun & Bradstreet 

The Nordics 

The Nordic region is in a recession that will probably deepen during H1 2024, with any meaningful recovery likely only in H2. The broad story is similar across the region, with high interest rates, sticky inflation, slowdown in exports, lack of investment, and subdued consumer demand negatively affecting growth. The region is also witnessing very high bankruptcy rates, with Sweden posting the highest level of bankruptcy in 2023 since the 1990s. The region’s industrial structure is more heavily tilted toward manufacturing and construction, making it more sensitive to movement in interest rates. Europe, led by Germany, has been the largest export destination for the region and slowdown in the eurozone has been weighing on the Nordics.

The Finnish economy is experiencing a deeper recessionary spell in 2024, with recovery anticipated in H2 once consumer spending improves, inflation moderates, and exports recover. As Finnish mortgages are mainly variable rate loans, the rise in interest rates has rapidly increased loan servicing costs for households. Meanwhile, Sweden reported its third straight quarterly contraction, on the back of a high-interest-rate environment. Norway, on the other hand, is benefitting from the high exposure to the hydrocarbon sector, while the non-oil segment has also picked up recently, aided by wholesale and retail trade. The key challenges to the economy are negative real wage growth, higher borrowing costs affecting investments, a modest rise in unemployment, and still-low private consumption.

The potential recovery in H2 2024 should follow interest rate cuts, along with moderating inflation and stabilization in the labor market. We expect households’ purchasing power to subsequently rise and sectors such as manufacturing, construction, and real estate will likely recover, indicating broader economic growth.

The region has seen heightened tensions due to several factors, including the entry of Sweden and Finland to NATO, which will likely result in the rapid militarization of the Nordics; the region's proximity to Russia; the increased risk of cyberattacks; closure of land border checkpoints; and disruption to sea trade routes.

Nordics real GDP growth (%)

 

Source: Haver Analytics

Asia Pacific

Economies in the Asia Pacific region continue to benefit from the stabilization of goods trade globally. Moreover, significant intra-regional trade has worked to cushion the blow of freight traffic disruptions in the Red Sea, though shipments to key markets in Europe and North America have suffered due to higher costs and delays. Across the region, growth outcomes have been mixed. According to the latest updated growth figures from Q4 2023, the region seems to be witnessing economic outperformance in India, Vietnam, Singapore, and South Korea, balanced by underperformance in Malaysia, Thailand, and  
New Zealand. The largest economy in the region, the Chinese Mainland, has deployed modest fiscal policy support following the economically important ‘Two Sessions' meeting, where policymakers re-committed to new-age industrial development while outlining a 5% GDP growth target for 2024 (in line with that of 2023). With ongoing challenges in the property sector and unhelpful base effects, this growth target may prove to be challenging to achieve. However, a pickup in exports that is in line with regional trends, a rebound in retail sales, and steadily improving domestic and international travel offer credence to a constructive view for the coming quarters. This should help support growth prospects for the entire region.

Asia Pacific real GDP growth q/q (%)

Source: Haver Analytics

Inflation in Asia Pacific also remains broadly stable. The marginal uptick in recent inflation prints across several economies was in sync with the global trend and not enough to prompt further rate hikes (Taiwan Region being a notable exception). In fact, Thailand and the Chinese Mainland have been dealing with deflation, with a chance that the Chinese central bank may cut rates further and the Bank of Thailand may also follow suit later in the year. On the other end of the spectrum is Japan, where the Bank of Japan finally shifted away from its long-running negative interest rate policy on the back of solid wage hikes (among the highest in decades) and sound corporate balance sheets. However, it is also worth highlighting that despite this overhaul, monetary policy is likely to stay accommodative as the growth outturn remains quite weak.

A cyclical improvement in semiconductor demand is leading the way for export recovery in the region. With interest rates globally having peaked, the region also offers some of the best growth opportunities in 2024 relative to the rest of the world. The key risks for businesses to watch are a worsening geopolitical environment that causes further supply-side disruptions; relatedly, prospects of returning inflationary pressures further delaying monetary policy normalization; domestic political uncertainty threatening to derail growth recovery (such as in the Philippines); and finally, disappointing growth in the Chinese Mainland. Individually or collectively, these could alter the prospects for the region. Further, rhetoric and military activities on the Korean Peninsula and in parts of the South China Sea could continue to act as trigger events for risk-off sentiment occasionally.

Latin America & the Caribbean

Several Latin American countries, including Brazil, Mexico, and Argentina, are expected to witness a slowdown in H1 2024. Argentina is already in recession, with growth forecasts for the region as a whole declining to 1.7% in 2024, down from 2.2% the previous year and significantly lower than the 3.9% seen in 2022. Factors contributing to this slowdown include deceleration in the Chinese Mainland, as well as persistently high domestic interest rates. However, falling domestic inflation and anticipated U.S. rate cuts could provide some relief, allowing central banks in the region to continue cutting rates to stimulate growth. ‘Nearshoring’ efforts provide another upside to growth.

Health concerns also loom large in Latin America, with a surge in cases of dengue posing a significant threat. Rising temperatures and increased rainfall have fueled the spread of the disease, leading to a dramatic rise in reported cases compared to previous years. Countries such as Guatemala, Peru, Paraguay, and Argentina have seen alarming increases in cases, prompting national alerts and declarations of emergency. 

Reported dengue cases in Latin America

Source: Pan American Health Organization

In Argentina, President Javier Milei faces ongoing political and economic hurdles in implementing comprehensive reforms. Despite efforts to introduce austerity measures and deregulation, inflation persists at high levels though showing signs of recent moderation. This uncertainty surrounding the government's ability to enact reforms has led to ongoing market concerns and volatility. However, there are positive developments with the central bank responding to moderating inflation by unexpectedly reducing the benchmark interest rate. Additionally, Argentina has successfully refinanced USD50.3bn of peso-denominated sovereign debt, aiming to ease pressure on the public accounts and paving the way for lifting currency controls. Furthermore, the country has reached an agreement with the International Monetary Fund (IMF) to release USD4.7bn as part of a debt restructuring plan. 

Mexico, on the other hand, is gearing up for a pivotal general election in June, which will shape the country's political landscape for the foreseeable future. President Andrés Manuel López Obrador's proposed constitutional reforms have sparked controversy and are likely to influence political debates leading up to the election. Additionally, trade tensions with the U.S., particularly regarding steel tariffs, add another layer of uncertainty to Mexico's economic outlook.

In Colombia, widespread wildfires and political instability, including conflicts with rebel groups, continue to pose significant threats to the country's stability. The appointment of a new attorney-general and the suspension of a ceasefire with rebel factions further underscore the ongoing challenges facing the Colombian government.

Eastern Europe & Central Asia

Eastern European economies are slowing down, although headline numbers are still ahead of their Western counterparts. Germany being the single largest market for all Eastern European manufacturing companies, anemic growth in Germany has damaged manufacturing sectors across the region. High interest rates and still-negative real wage growth in some countries mean households have lower purchasing power, affecting demand. The tightening labor market, along with depletion in capital appetite, has also contributed to the declining productivity in the region’s manufacturing sector. 

Disinflation and the anticipated downward trajectory of interest rates are the key themes. While inflation has been moderating broadly, this moderation has not been consistent across countries or various inflation indices; core inflation remains stickier and producer prices are falling more swiftly. Central banks will be closely watching wage growth rates and labor market trends before easing monetary conditions. 

Fiscal consolidation among the leading economies is another key theme for the region. Higher credit costs and debt serviceability are the key challenges for governments and the private sector. Nations are rolling back their post-pandemic and post-Russia-Ukraine conflict support to households and businesses. This could further depress consumer demand and add to rising corporate bankruptcies. Fiscal consolidation efforts to reach parity with the eurozone could put pressure on policymakers, especially in countries with large fiscal deficits such as Slovakia, Romania, the Baltic states, Croatia, the Czech Republic, and Slovenia. 

The region is also witnessing high geopolitical risks. Ukraine’s defenses are proving inadequate in the face of Russian attacks on key civilian and business installations, and disruptions to sea and land routes are also impacting the nation. In addition, nations bordering Russia have become increasingly wary of their own security and are ramping up their military preparedness. 

The Central Asian economies have regained the attention of all major powers – be it the Chinese Mainland, Russia, or European nations – as key trading routes and alternative sources of commodity resources, including energy. At the same time, these economies are also witnessing higher migration and remittances from Russia, which is keeping their currencies strong, exports robust, and overall economic growth slightly higher than that of other regions. 

Eastern Europe real GDP growth q/q (%)

 

Source: Haver Analytics; Dun & Bradstreet 

Middle East & North Africa

There are ongoing diplomatic efforts in the Middle East and North Africa region, with reports indicating discussions between the U.S. and Iran. These discussions, reportedly held in Oman, aim to address regional strains, including concerns related to Yemen's Houthi movement and Iran's nuclear program. The talks are part of a broader strategy that combines diplomatic engagement with military deterrence to reduce conflicts sparked by the Israel-Hamas conflict.

Egypt, a key player in the region, will continue to confront economic headwinds. Its economy is expected to be negatively impacted due to currency depreciation, high inflation, and disruptions caused by the Gaza crisis, which have led to a significant decline in revenue from the Suez Canal and dampened prospects for tourism. The Central Bank of Egypt’s decision to raise overnight interest rates suggests potential currency devaluation ahead. There is cause for optimism though, with the country signing an USD8bn deal with the IMF, an expansion of the USD3bn, 46-month Extended Fund Facility that the IMF struck with Egypt back in December 2022, predicated on the shift to a more flexible exchange-rate system.

Egyptian pound likely to depreciate

Source: New York Times, JP Morgan

Despite international pressure for a ceasefire in Gaza, Israel remains steadfast in its military campaign, aiming for a decisive victory over Hamas. However, negotiations held in Egypt face hurdles and Israel's actions have expanded to target Lebanon's eastern region, raising concerns about regional stability. Prime Minister Benjamin Netanyahu has faced domestic public discontent over his handling of the Gaza conflict with calls for his resignation amid protests in major cities. On the economic front, there are distinct signs of recovery from the impact of the conflict, with indicators like the Composite State of the Economy Index showing gradual improvement. Despite ongoing tensions, Israel's economy remains resilient, with inflation declining and credit card spending increasing. 

We expect Saudi Arabian growth to slow in 2024, more than earlier anticipated. While the government has extended its oil production cut into Q2 2024, efforts to diversify the economy, particularly through tourism reforms aligned with Vision 2030, remain on track. Saudi Arabia's selection to host the Expo 2030 underscores its commitment to global engagement and economic transformation beyond oil. Lastly, Libya is navigating a precarious path toward stability amid ongoing armed conflicts and political turmoil. Efforts to replace armed groups in Tripoli with regular forces signal a tentative step towards restoring order. The resumption of oil production from the Sharara oilfield offers hope for economic recovery, albeit amid lingering challenges of political fragmentation and regional power struggles.

Sub-Saharan Africa 

Prospects across sub-Saharan Africa are challenging. Weak governance and insecurity, leading to outbreaks of conflict and violence, continue to be the foremost feature of sub-Saharan Africa and will shape 2024. In West Africa, Mali, Niger, and Burkina Faso have withdrawn from the Economic Community of West African States (Ecowas) and have been instead drawn to the Russia-backed Alliance of Sahel States. The initial response by the remaining bloc members was to impose economic sanctions on Niger and depose the military junta ruling the country. The loss of three member countries will likely affect trade and economic development within the bloc.

We have kept the outlook for the region at ‘deteriorating’. Tanzania will be held back by its reinstatement in February on the FATF grey list, which will impose additional costs and, crucially, make the economy less attractive for investment. Zambia is slowly progressing with debt negotiations, while the threat of a regional conflict intensifies around the mineral-rich Democratic Republic of the Congo. Conflict in Sudan is escalating and amplifying geopolitical tensions between outside actors such as the U.S., the UAE, Saudi Arabia, and Iran.

However, the situation is not as grim as it appears. Progress is being made, competition for sub-Saharan Africa’s natural resources remains high, and growth prospects vary by country. South Africa should see stronger growth this year, driven by an improving outlook for the energy sector. The May general election may be a pivotal moment in the country’s history, with polls suggesting that the incumbent African National Congress (ANC) party faces the most fiercely contested election since the country declared democracy in 1994. Prospects in Nigeria are also encouraging. Oil output will become more predictable with the start of operations at the Dangote refinery – when fully operational, the plant will be capable of processing 650,000 barrels of oil a day, making it the biggest single-train capacity in the world.  

Nigerian oil production and crude oil prices

Source: Haver Analytics; Dun & Bradstreet

Key Commodity Outlook: Oil

Saudi Arabia, along with some OPEC+ members, has decided to continue its voluntary cutback in oil supply by 1m barrels/day (b/d) through Q2 2024, intended to strengthen oil prices amid worries about too much supply and weak demand. Russia has also reduced its production by nearly 500,000 b/d during the same period, aligning with the collective effort to stabilize market conditions.

Amid the escalating tensions in the Middle East, fundamental factors have predominantly influenced oil market dynamics. Despite challenges such as Houthi attacks on shipping routes in the Red Sea and the looming threat of the conflict spilling over to Lebanon and Syria, oil prices have remained relatively stable, fluctuating between USD75 and USD85 per barrel over the past three months. Although disruptions in oil transport routes have posed a significant potential threat, the presence of spare capacity in the market has helped alleviate concerns regarding supply. However, any escalation in regional conflicts carries the potential to endanger oil production infrastructure.

Source: World Bank, Caldara, Dario, and Matteo Iacoviello (2022)

According to data from Bloomberg, OPEC’s production increased significantly by 110,000 b/d to reach 26.68m b/d in January. This rise can be attributed to the reopening of Libya's Sharara field following earlier closures due to protests. Although Iraq slightly decreased its supplies, both Iraq and the UAE have consistently exceeded the new quota set at the beginning of the year. In anticipation of this trend, OPEC's voluntary output cut agreement might be extended beyond Q2 to maintain market stability.

An anticipated rise in oil demand is expected, particularly as winter concludes in the northern hemisphere, evidenced by the short-term tightness observed in the physical market. However, lingering concerns about demand stem from a subdued economic outlook, especially in the Chinese Mainland. In the near term, there appears to be constrained potential for oil price hikes due to the accumulation of stockpiles. Nevertheless, the prospect of economic revival later in the year may offer some support to prices.

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