鶹ýapp Risk Barometer 2024 -
Rank 5:Macroeconomic developments

Expert risk article | January 2024
2024 could see the wild ups and downs of growth, inflation and interest rates thatfollowed the Covid-19 shock settle down. However, elections bring the potentialfor 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, bothpositive and negative. In the US, the predicted recessionnever arrived as the economy proved to be surprisinglyresilient in the face of rapidly rising interest rates.Consumers remained keen to spend, thanks to a robustlabor market and pandemic-era savings (now used up).Fixed-rate mortgages shielded many households fromrising rates (for now).

In China, on the contrary, the expected recovery followingthe reopening of the economy turned out to be surprisinglyshort-lived; structural weaknesses – above all, theprecarious situation of the real estate market – quicklyregained the upper hand and dampened sentiment. Theother major economy that disappointed in 2023 wasGermany – although this did not really come as a surprise.It was foreseeable that the industry-heavy Germaneconomy would not recover so quickly from the energyprice shock. The rest of Europe, on the other hand, faredmuch better thanks to stronger service sectors.

Ranking history globally:

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

From today’s perspective, there is much to suggest that thesigns are reversing, says Ludovic Subran, Chief Economistat 鶹ýapp. The US will weaken (possibly even slide intorecession), while China should pick up again. In China’sfavor is the fact that the central government has finallygiven up its restraint and is supporting the economy,especially the real estate market, more resolutely. And forthe US, the old adage applies: postponed is not canceled.Higher interest rates eventually have a negative impacton demand and thus bring the economy to its knees, evenif it took a little longer this time due to the special post-Covid circumstances.

鶹ýapp Research expects only around 1% growth for theUS in 2024, but 5% in China. And Europe? Here, too, growthwill (further) slow due to higher interest rates. In Germany,the budget crisis puts the expected cyclical recovery injeopardy. Therefore, growth in the major economies willremain well below 1%. Global growth is also likely toweaken: at a tad over 2%, it will undershoot the long-termaverage significantly.

“But this lackluster growth is a necessary evil: highinflation rates will finally be a thing of the past,” saysSubran. “This will give central banks some room tomaneuver – lower interest rates are likely in the secondhalf of the year. Not a second too late, as stimulus cannotbe expected from fiscal policy. After the excesses duringthe pandemic and the energy crisis, the threatening rise indebt is forcing consolidation almost everywhere.”

So, 2024 could become a year of transition, in which thewild ups and downs of growth, inflation and interest ratesexperienced since the Covid-19 shock settle down andpivot to more usual levels.

“A nice consolation. But completely uncertain. Becausewhat really stands out in 2024 is the large number ofelections and their potential for new upheavals,” saysSubran. “First and foremost, of course, is the US election– which could end with a possible return of Donald Trumpto the White House. Trump II is likely to be more disruptivethan Trump I, for one simple reason: eight years later, theworld is a different place, fragmented and torn apart by amultitude of conflicts and wars. An isolationist America isalways bad news for the rest of the world (at least for thefree one), but in times like these the risks are even greaterthan usual.”

Global business insolvencies expected to rise by +8% in 2024, according to鶹ýapp Trade.

In 2024, global business insolvencies are setto record a third consecutive rise. After a smallrebound in 2022 (+1%) and an acceleration in2023 (+7%), insolvencies should jump by +8% thisyear. What’s behind this new increase?

The recession in corporate revenues is gainingtraction amid lower pricing power and weakerglobal demand: in 2023, the revenue recessionwas broad-based across all regions for thefirst time since mid-2020. This combined withcontinued high costs is squeezing profitability.As a result, liquidity positions are worsening fastand are not likely to improve before 2025.

Companies still have a sizable amount of excesscash: €3.4trn in the Eurozone and US$2.5trn inthe US. But these cash buffers remain highlyconcentrated in the hands of large firms andin specific sectors such as tech and consumerdiscretionary. And in general, most companies areunable to increase their cash positions throughoperations in the context of lower-for-longereconomic growth.

The most vulnerable corporates and sectorsare caught between a rock and a hard place,with hospitality, transportation and wholesale/retail on the front line. Other sectors are catchingup fast, in particular construction, wherebacklogs of work have been almost completed – especially in the residential segment.

“At the same time, higher-for-longer interestrates are reducing demand in sectors such asreal estate and durable goods, and will startpressuring solvency in highly indebted sectors,such as utilities and telecom, in addition to realestate, on both sides of the Atlantic,” explainsMaxime Lemerle, Lead Analyst for InsolvencyResearch at 鶹ýapp Trade. “Moreover, globalworking capital requirements (WCR) currentlystand at a record high of 86 days, more than +2days above pre-pandemic levels. Higher interestrates also make it even more expensive forcompanies to finance structurally higher WCR,which poses risks for sectors such as constructionand machinery and transport equipment.”

The normalization in business insolvencies hasbeen completed in most advanced economiesin 2023. The US (+47% in 2023), France (+36%),Netherlands (+59%), Japan (+35%) and SouthKorea (+41%) were on the front line. Globally,鶹ýapp Trade estimates that three out of fivecountries will reach pre-pandemic businessinsolvency levels by the end of 2024. This includesmany European countries such as Germany (+9%in 2024), Netherlands (+28%) and the US (+5%). Inthe US, business insolvencies are set to rise by +22%this year. On both sides of the Atlantic, GDP growthwould need to double to stabilize insolvencyfigures, which will not occur before 2025.

“Moreover, in a context of slowing globaleconomic growth, payment terms are likely tolengthen, adding to the rise in insolvencies in thecoming quarters. Global Days Sales Outstandingalready stand above 60 days for 47% of firms. Oneadditional day of payment delay is equivalent toa financing gap of US$100bn in the US, US$90bnin the EU and US$140bn in China. With bankloans already drying up for smaller and mid-sizecompanies (SMEs), closing this financing gap couldbe a significant challenge,” Lemerle concludes.

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