The recession in Europe will continue until the summer

The European economy will remain precarious at the start of 2024. There is therefore a good chance that the recession will continue until the summer. This is what emerges from our latest report: Global Economic Outlook 2023-25.

We forecast economic growth of +1.4% for the United States next year. America thus gets rid of the risk of recession. For the euro zone, the report expects growth of +0.8%. “However, this growth will take until the second half of the year. Before that, a slight contraction is expected,” says Johan Geeroms, our Director Risk Underwriting Benelux. According to Johan Geeroms, if the economy does not yet see an acceleration over the next six months, it is because of the repercussions of the increase in interest rates and the effects are not yet over.

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Electoral uncertainty

Growth is also hampered by geopolitical uncertainty. Johan Geeroms: “In addition to the war raging in Ukraine and Gaza, we are faced with a profusion of elections around the world. The EU elects a new parliament. The United Kingdom also goes to the polls, as do Belgium, Portugal and Austria. Not to mention the even more important American elections. All the countries holding elections in 2024 represent almost half of global GDP. The impact is therefore significant. And ambient populism also generates a lot of uncertainty.”

Inflation and interest rates

“We expect inflation to fall, with positive effects on food and energy prices. We believe that central banks will cut interest rates again next year. We don't expect this to happen very quickly. Policymakers hope to cool the labour market by keeping interest rates high.” According to our report, key rates at the end of 2024 will be 4.5% in the United States, 3.5% in the Eurozone and 4.5% in the United Kingdom.

SMEs in difficulty

The number of bankruptcies continues to increase, the increase is 10% worldwide. In three out of five countries, bankruptcies will reach pre-pandemic levels by the end of 2024.

Johan Geeroms: “We clearly see a gap between large listed groups and SMEs. While large companies remain resilient, small and medium-sized companies are increasingly facing liquidity and profitability problems. The rise in interest rates and the increase in labour costs weigh heavily here. The good news is that next year, most of the inventory reduction will be achieved, which will stimulate demand for new products.”

China

The report suggests that China's leadership role will be limited. “With a lot of stimulus programs, the Chinese government is trying to stimulate its own economy. Interest rates there were also cut several times last year, unlike the rest of the world, but without much effect. Chinese consumer confidence therefore remains low. The latter are in fact confronted daily with the colossal crisis in the real estate market, which tends to make them extra cautious.”

According to Johan Geeroms, it is precisely the other Asian countries that provide a positive impetus to global trade. Thus, countries like Vietnam, South Korea and India continue to benefit from the realignment of global value chains underway since the coronavirus pandemic.

Double growth in Belgium

In terms of European perspectives, Belgium is an exception. This week, the BNB notably announced that growth in 2023, reaching 1.5%, will be twice as high as the EU average. This is thanks to an 8.6% increase in business investment, in response to rising wage costs and labour shortages. Growth would, however, decrease slightly over the following three years, then settling at 1.3% on average.

“By automatically linking salaries to the index, consumers’ purchasing power will not be affected. However, we are losing competitiveness given this salary handicap (currently 4% on average). But our neighbouring countries should catch up from 2024, which will eliminate this handicap by 2026,” says Johan Geeroms.

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