Winter and recession looming in Europe<\/b><\/p>\n
Most of the risks mentioned in our previous publications have materialised: theenergy crisis in Europe<\/b>,persistent inflation<\/b>, andaggressive monetary tightening.<\/b> This has led Coface to revise down significantly itsworld growth forecasts for 2023: it should be below 2%<\/b> as in 2001, 2008, 2009 and 2020.<\/p>\n
While the growth forecasts have been revised downwards for all regions worldwide,Europe is the one whose outlook has darkened the most<\/b> with a recession that seems inevitable in all the main economies this winter. Indeed, the energy crisis is intensifying andthe old continent is preparing for “imposed” sobriety<\/b>. Whether it takes the form of a “voluntary” reduction (suspension of activities that have become unprofitable because of energy costs) or rationing decreed by governments,the drop in energy consumption will necessarily translate into lower production and a decline in GDP<\/b>. The extent of the decline will depend largely on the severity of the winter, and Germany, the continent’s leading industrial power, will be at the forefront.<\/p>\n
Consequently,the majority of our country risk assessment downgrades this quarter again concern European economies<\/b>. Coface is proceeding with 6 additional downgrades, notably for 3 countries where the risk was still considered very low: Denmark, Switzerland and Luxembourg. Only Norway, a gas producer, remains in a position to enjoy the best risk assessment.<\/p>\n
Faced with the prospect of persistently high global energy prices,almost half of the 49 downgrades of sectoral assessments concern energy-intensive industries<\/b> such as chemicals, paper and metals. However, unlike the previous quarter, when most of these downgrades were in Europe,this time we also downgraded these sectors in most Asian economies <\/b>and, for example, also in South Africa.<\/p>\n
Central banks step up the fight against persistent inflation<\/b><\/p>\n
Recent months have confirmedthe materialisation of persistently high and increasingly widespread inflation in advanced and emerging economies<\/b>.<\/p>\n
In this environment,the main central banks remain resolutely aggressive<\/b> and most of them havereturned to key interest rate levels unseen in the last decade.<\/b> The Fed, for example, raised its key rate 3 times in a row by 75 basis points this summer. This aggressiveness is leading to increased monetary tightening in other countries – particularly emerging countries – in order to halt the depreciation of their currencies against the USD.<\/p>\n
Such a tightening of monetary and financial conditions, should it continue at the current pace, would obviouslythreaten global growth and financial stability<\/b>.<\/p>\n
Three emerging central banks are continuing to pursue counter-current monetary policies: Russia, Turkey and China.<\/b> The Chinese monetary authorities have lowered some benchmark interest rates in order to support activity in response to the confirmation of a sharp slowdown in the economy. It continues to be affected by the zero-COVID strategy, the severe drought this summer and the crisis in the property sector. In particular, the woes of the property sector, which is estimated to account for 30% of GDP, will contribute to China’s growth falling well below the standards of the last decades in 2022 (3.2%) and 2023 (4.0%), contributing to the sharp overall slowdown.<\/p>\n
Widespread monetary tightening clearly darkens the outlook for the global construction sector.<\/b> Industrial metals and timber prices have fallen steadily in recent months, and are down by 20% and 60% respectively since the beginning of the year, leading Coface to downgrade these sectors in several geographical areas.<\/p>\n
Danger! Conflicting objectives between fiscal and monetary policies<\/b><\/p>\n
While central banks are determined to fight inflation with “whatever it takes”, many are faced with a conflict of objectives with the fiscal policy of their country\/region. National governments, fighting against the contraction of activity, have indeed multiplied measures to support household purchasing power and corporate cash flow.The outcome will be a potentially explosive cocktail for public finances: a widening public deficit and soaring financing costs.<\/b><\/p>\n
Click here to download the full barometer<\/b><\/a><\/u><\/b><\/p>\n Hashtag: <\/b>#Coface<\/p>\n
The issuer is solely responsible for the content of this announcement.<\/em><\/p>\n<\/div>\n\n\n
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