91╠Ă▓«╗ó

About usRisk Barometer 2024 -
Rank 5:╠řMacroeconomic developments

Expert risk article | January 2024
2024 could see the wild ups and downs of growth, inflation and interest rates that╠řfollowed the Covid-19 shock settle down. However, elections bring the potential╠řfor further upheavals.
The most important corporate concerns for the year ahead, ranked by 3,069 risk management experts from 92 countries and territories.

In economic terms, 2023 had a few surprises in store, both╠řpositive and negative. In the US, the predicted recession╠řnever arrived as the economy proved to be surprisingly╠řresilient in the face of rapidly rising interest rates.╠řConsumers remained keen to spend, thanks to a robust╠řlabor market and pandemic-era savings (now used up).╠řFixed-rate mortgages shielded many households from╠řrising rates (for now).

In China, on the contrary, the expected recovery following╠řthe reopening of the economy turned out to be surprisingly╠řshort-lived; structural weaknesses ÔÇô above all, the╠řprecarious situation of the real estate market ÔÇô quickly╠řregained the upper hand and dampened sentiment. The╠řother major economy that disappointed in 2023 was╠řGermany ÔÇô although this did not really come as a surprise.╠řIt was foreseeable that the industry-heavy German╠řeconomy would not recover so quickly from the energy╠řprice shock. The rest of Europe, on the other hand, fared╠řmuch better thanks to stronger service sectors.

╠ř Ranking history globally:

  • 2023: 3 (25%)╠ř ╠ř
  • 2022: 10 (11%)╠ř
  • 2021: 8 (13%)╠ř ╠ř
  • 2020: 10 (11%)
  • 2019: 13 (8%)╠ř ╠ř
╠ř Top risk in:
╠ř
  • Bulgaria
  • Cameroon
  • Ghana
  • Mauritius
  • Nigeria
  • Turkey

From todayÔÇÖs perspective, there is much to suggest that the╠řsigns are reversing, says Ludovic Subran, Chief Economist╠řat 91╠Ă▓«╗ó. The US will weaken (possibly even slide into╠řrecession), while China should pick up again. In ChinaÔÇÖs╠řfavor is the fact that the central government has finally╠řgiven up its restraint and is supporting the economy,╠řespecially the real estate market, more resolutely. And for╠řthe US, the old adage applies: postponed is not canceled.╠řHigher interest rates eventually have a negative impact╠řon demand and thus bring the economy to its knees, even╠řif it took a little longer this time due to the special post-Covid circumstances.

About usResearch expects only around 1% growth for the╠řUS in 2024, but 5% in China. And Europe? Here, too, growth╠řwill (further) slow due to higher interest rates. In Germany,╠řthe budget crisis puts the expected cyclical recovery in╠řjeopardy. Therefore, growth in the major economies will╠řremain well below 1%. Global growth is also likely to╠řweaken: at a tad over 2%, it will undershoot the long-term╠řaverage significantly.

ÔÇťBut this lackluster growth is a necessary evil: high╠řinflation rates will finally be a thing of the past,ÔÇŁ says╠řSubran. ÔÇťThis will give central banks some room to╠řmaneuver ÔÇô lower interest rates are likely in the second╠řhalf of the year. Not a second too late, as stimulus cannot╠řbe expected from fiscal policy. After the excesses during╠řthe pandemic and the energy crisis, the threatening rise in╠řdebt is forcing consolidation almost everywhere.ÔÇŁ

So, 2024 could become a year of transition, in which the╠řwild ups and downs of growth, inflation and interest rates╠řexperienced since the Covid-19 shock settle down and╠řpivot to more usual levels.

ÔÇťA nice consolation. But completely uncertain. Because╠řwhat really stands out in 2024 is the large number of╠řelections and their potential for new upheavals,ÔÇŁ says╠řSubran. ÔÇťFirst and foremost, of course, is the US election╠řÔÇô which could end with a possible return of Donald Trump╠řto the White House. Trump II is likely to be more disruptive╠řthan Trump I, for one simple reason: eight years later, the╠řworld is a different place, fragmented and torn apart by a╠řmultitude of conflicts and wars. An isolationist America is╠řalways bad news for the rest of the world (at least for the╠řfree one), but in times like these the risks are even greater╠řthan usual.ÔÇŁ

Global business insolvencies expected to rise by +8% in 2024, according to╠řAbout usTrade.

In 2024, global business insolvencies are set╠řto record a third consecutive rise. After a small╠řrebound in 2022 (+1%) and an acceleration in╠ř2023 (+7%), insolvencies should jump by +8% this╠řyear. WhatÔÇÖs behind this new increase?

The recession in corporate revenues is gaining╠řtraction amid lower pricing power and weaker╠řglobal demand: in 2023, the revenue recession╠řwas broad-based across all regions for the╠řfirst time since mid-2020. This combined with╠řcontinued high costs is squeezing profitability.╠řAs a result, liquidity positions are worsening fast╠řand are not likely to improve before 2025.╠ř

Companies still have a sizable amount of excess╠řcash: ÔéČ3.4trn in the Eurozone and US$2.5trn in╠řthe US. But these cash buffers remain highly╠řconcentrated in the hands of large firms and╠řin specific sectors such as tech and consumer╠řdiscretionary. And in general, most companies are╠řunable to increase their cash positions through╠řoperations in the context of lower-for-longer╠řeconomic growth.╠ř

The most vulnerable corporates and sectors╠řare caught between a rock and a hard place,╠řwith hospitality, transportation and wholesale/retail on the front line. Other sectors are catching╠řup fast, in particular construction, where╠řbacklogs of work have been almost completed ÔÇô especially in the residential segment.

ÔÇťAt the same time, higher-for-longer interest╠řrates are reducing demand in sectors such as╠řreal estate and durable goods, and will start╠řpressuring solvency in highly indebted sectors,╠řsuch as utilities and telecom, in addition to real╠řestate, on both sides of the Atlantic,ÔÇŁ explains╠řMaxime Lemerle, Lead Analyst for Insolvency╠řResearch at About usTrade. ÔÇťMoreover, global╠řworking capital requirements (WCR) currently╠řstand at a record high of 86 days, more than +2╠řdays above pre-pandemic levels. Higher interest╠řrates also make it even more expensive for╠řcompanies to finance structurally higher WCR,╠řwhich poses risks for sectors such as construction╠řand machinery and transport equipment.ÔÇŁ

The normalization in business insolvencies has╠řbeen completed in most advanced economies╠řin 2023. The US (+47% in 2023), France (+36%),╠řNetherlands (+59%), Japan (+35%) and South╠řKorea (+41%) were on the front line. Globally,╠řAbout usTrade estimates that three out of five╠řcountries will reach pre-pandemic business╠řinsolvency levels by the end of 2024. This includes╠řmany European countries such as Germany (+9%╠řin 2024), Netherlands (+28%) and the US (+5%). In╠řthe US, business insolvencies are set to rise by +22%╠řthis year. On both sides of the Atlantic, GDP growth╠řwould need to double to stabilize insolvency╠řfigures, which will not occur before 2025.

ÔÇťMoreover, in a context of slowing global╠řeconomic growth, payment terms are likely to╠řlengthen, adding to the rise in insolvencies in the╠řcoming quarters. Global Days Sales Outstanding╠řalready stand above 60 days for 47% of firms. One╠řadditional day of payment delay is equivalent to╠řa financing gap of US$100bn in the US, US$90bn╠řin the EU and US$140bn in China. With bank╠řloans already drying up for smaller and mid-size╠řcompanies (SMEs), closing this financing gap could╠řbe a significant challenge,ÔÇŁ Lemerle concludes.

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