Recession until 2024

There is a strong likelihood that the recession in the Eurozone will not end in 2023, but will continue until 2024. This is reflected in our detailed report on the most important economic developments for the next two years. "There is no doubt that 2023 will be a year of recession in both the United States and in the Eurozone," says Johan Geeroms, our Director of Risk Underwriting Benelux.

“However, the slowdown in the Eurozone may last longer than is generally thought. We expect a strong recovery in the United States in 2024, while in Europe the economy could continue to contract if the gas shortage were to continue into 2024. Even for 2025, our analysts predict only minimal growth for a country like Germany. The country remains dependent on Russian gas, and this mainly affects the German industrial sector. This is also bad news for Belgium and the Netherlands, as Germany is our main trading partner. "

Replacing Russian gas is not enough

According to Johan Geeroms, through tactful planning, it has been possible to cope with the gas shortage for this year and the coming months. “However, the outlook for next winter is not positive. We are trying to find gas everywhere, but replacing Russian gas will not be enough. This uncertainty undermines economic confidence. Energy prices also remain high. For many companies, this is unsustainable. The question is how European policy makers will react to this situation. Gas rationing is not inconceivable, but this action would place European unity under great pressure. "

Inflation remains high

High-energy prices also continue to contribute towards consistently high inflation. In the next year, we expect inflation in the Eurozone to reach 6.1%. For short-term interest rates, we expect +200 basis points (bps) in the first half of 2023. And then another +200 bps in the second half. These are also significantly higher costs for companies.

United States: a completely different picture

For the United States, the situation is different. Admittedly, the US economy is also expecting a recession next year due to the rapid tightening of the money market and high inflation. We expect US GDP growth to slow from -0.3% in 2023, before registering a modest increase of +1.6% again in 2024.

Recovery in China?

The recovery of the Chinese economy could provide a boost to the global economy. It will all depend on how the country handles the influence of COVID. Easing measures will initially lead to a recovery in domestic demand. This is expected to materialize by mid-2023. This easing of measures will also help to eliminate problems in supply chains. We expect this pressure will continue to decrease over the coming year.

Bankruptcies

The sectors most affected by the slowdown in growth, the rise in inflation and the high interest rates are those of construction, the metallurgy industry, transport, telecommunications, mechanical engineering, household appliances, the automotive and textile industries. According to Johan Geeroms: “The energy crisis is having a huge impact on the profits of European companies. Government support programs can only partially compensate for this shock. However, this support can prevent a tsunami of failing companies. In 2023, we expect bankruptcies to increase by 25% in the Eurozone. In Belgium, the increase will only be 12%, but our country has already suffered a serious setback in 2022 with a 41% increase in the number of bankruptcies. The number of bankruptcies is increasing most rapidly in the Netherlands. It will reach 58% by 2023. The economic slowdown is hitting this country hard. Globally, the bankruptcy rate will increase by 19%. "

Geopolitical turbulence

With the Russian invasion, the risk of geopolitical unrest has returned. We view this as a factor that will remain critical for a long time to come. “Uncertainty is everywhere. Think of the actions of Russia, of the tensions between China and the United States, of the energy crisis within the EU, which threatens to become political. Will the EU react in unison to all these challenges? Will the May 2024 elections appear in a very different light due to these tensions? What about the emergence of Eurosceptic parties? The same uncertainty, with significant international implications, looms over the US elections, which will also be held in 2024. "