MacroEconomic Bulletin- Economic highlights of April 2024

World Economic Outlook: IMF's dual perspective on future global economic dynamics.

• In its latest report, published in April, the International Monetary Fund (IMF) revised up its global economic projections but underscored the potential challenges to medium-term economic growth due to the persistent loss of productivity.
• Regional Economic Developments: It is expected that United States will lead developed countries’ economic growth, with projected growth rates of 2.7% in 2024 and 1.9% in 2025. Similarly, the Middle East and Asia are expected to grow by 2.8% in 2024, with a further acceleration to 4.5% in 2025. Global growth is anticipated to stabilize at a rate of 3.2% for both 2024 and 2025.
• The Eurozone is expected to remain the region with the lowest growth, the IMF expecting a modest increase of 0.8% yoy for 2024. For 2025 it is now forecasting an expansion of 1.5% yoy. Within this region, Spain and Portugal are projected to be the frontrunners, each expected to grow at 1.9% this year, in line with EthiFinance Ratings’ forecasts. By contrast, Germany and France are forecast to see more restrained growth rates of 0.2% and 0.7%, respectively.
• April concluded with rather robust economic performance, particularly highlighting the growth disparities between northern and southern European nations. Notably, Spain and Portugal outperformed expectations, each recording quarter-on-quarter growth of 0.7%, surpassing both the consensus estimate of 0.4% and the forecast by EthiFinance Ratings. Germany and France similarly concluded the month with a modest growth of 0.3%. This performance is primarily driven by resilient consumer spending, supported by a stable labour market and invigorated investment activities. The services sector continued to exceed the performance of the still-recovering industrial sector, while mild temperatures contributed to stabilizing energy prices.

Monetary Policy Considerations: The focus now shifts to the European Central Bank's forthcoming monetary policy decision, whether to lower interest rates in June.

• The situation is complex, given the robust economic activity in southern Europe, which adds to the uncertainty over the ECB's decision, in addition to the resilience of the US economy. In fact, a prolonged deviation from the Federal Reserve's monetary policy line could be unsustainable taking into account that the Fed, in its latest meeting, kept its interest rates unchanged and indicated that further progress in lowering inflation will be needed before it does so.
• A June interest rate cut for the Eurozone could depress the euro-dollar exchange rate, potentially enhancing export competitiveness while introducing inflationary pressures.
• In our opinion, it appears increasingly likely that any cut in interest rates might be postponed to the ECB's September meeting. Meanwhile, the Federal Reserve may even delay its first rates cut until 2025, especially in light of recent inflation data and continued strength in the labour market.

Geopolitical Risks: Maritime tensions are escalating, posing significant risks to global shipping routes and trade dynamics.

• Persistent maritime attacks by the Houthis, now extending from the Red Sea into the Indian Ocean, may necessitate further adjustments to maritime routes, potentially increasing shipping costs and elevating risks associated with the supply of specific raw materials and products, particularly affecting trade from Asia to Europe and the US.
• Over 30% of global container shipping passes through the Suez Canal. Nevertheless, the global economic pressure index maintained by the New York Federal Reserve remains stable at acceptable levels.

Environmental, Social, and Governance (ESG) Considerations: increasing natural disasters pose a challenge for the stability of the insurance sector.

• A recent piece pusblished by FT highlights that in the past two years, the EU has incurred economic losses exceeding EUR50bn from natural disasters, a significant increase from the preceding decade's annual average. The European Insurance and Occupational Pensions Authority (EIOPA) has issued warnings regarding the increased frequency of natural disasters, which is leading to higher insurance premiums and exacerbating concerns about insurability. EIOPA recommends implementing stricter construction standards, adopting risk-sharing mechanisms, and increasing reliance on reinsurance.
• On the topic of CO2 emissions, a recent analysis by The Economist magazine noted that the European Union achieved a 15.5% reduction in emissions in 2023, driven by the expansion of wind and solar energy capacity and a stringent emissions trading scheme. Despite these advances, the EU continues to face challenges in sustaining and expanding these measures to achieve an 88% reduction in emissions by 2040, amid ongoing geopolitical tensions and in the face of economic barriers.