Macroeconomics put to the test by microeconomic deterioration in Coface Barometer for Q3-2023

The near-continuous fall in inflation over the last few months, against a backdrop of easing commodity prices, coupled with buoyant labour markets and still solid wage dynamics, has rekindled hopes of a soft landing for the global economy. Now taken for granted, or almost, in the United States, such hopes are gaining ground in Europe, where the energy situation is far more reassuring than it was a year ago, and where finance bill drafts suggest - for the time being - only a (very) slight tightening of the fiscal screws. China, which prefers to take the longer route to purge the excesses of the past, will certainly slow significantly (+4% in 2024, after +4.5% this year) but will continue to be one of the main engines of a still convalescent world economy. In short, the spectre of recession is receding, as evidenced by the fact that yield curves in most developed economies are less and less inverted.

While the overall economic picture is undoubtedly better than a year ago, we do not endorse this highly optimistic reading of the situation. Over and above the risks that have already been mentioned many times, some of which continue to intensify (financial stability, social and political risks - which we are updating in this new edition of our barometer), we should bear in mind that the fight against inflation has not yet been won, or even entered its (painful) last mile: excluding energy, inflation remains well above the targets set by central banks, while the situation on the oil market has (again) become tense following the attacks in Israel. Rather than trying to read the omens in yield curves, which have been rendered illegible by central bank intervention for nearly 15 years, we should also recognise that the sudden flattening of the yield curves observed recently has more to do with a correction of (poor) market expectations in terms of monetary policy (a pivot that is constantly moving further away) and a reassessment of sovereign risk in a context of record bond issuances than with a real appetite for risk motivated by a more favourable growth outlook. By the way, equity markets are sliding (by around 5% since the beginning of August on most markets) and corporate earnings are, overall, being revised downwards.

Herein lies the main risk to macroeconomics in the short and medium term: while high levels of corporate profitability and cash flow have enabled developed economies to weather the strong headwinds of recent quarters, the acceleration in insolvencies observed in recent months, amid shrinking cash positions, deteriorating margins and rising interest charges, is now threatening the virtuous circle of low claims, resilient employment, and household dissaving. Ultimately, this could have a greater impact than initially expected on final demand, and therefore on global growth. In other words, it is not companies that are dependent on the economic climate, it is the macroeconomy that derives from the microeconomy. The risks to our global growth forecasts for 2024 (+2.2%, after +2.4% this year - significantly lower than those of the consensus) therefore remain essentially bearish, particularly in the developed economies.

In this context, we have modified 7 country risk assessments (2 upgrades and 5 downgrades) and 33 sector risk assessments (17 upgrades and 16 downgrades), reflecting a degree of stability in our expectations over the next 18 months, in an environment that remains highly volatile and uncertain.