July 2024

Atradius Economic Outlook

Soft landingTable of Contents
Table of Contents

2

Executive Summary

3

Global macroeconomic environment

4

1.1 A soft landing
1.2 Solid but unspectacular growth
1.3 Assumptions for solid growth
1.4 Trade out of the doldrums
1.5 Fossil fuel prices trending down
1.6 Sticky US inflation not indefinite
1.7 High policy rates unsustainable
1.8 Government stimulus under stress
1.9 What if inflation rises?

5
6
8
9
11
14
17
19
20

Advanced economies’ outlook

22

2.1 More benign inflation environment in advanced economies
2.2 Eurozone: mild recovery in 2024 and 2025
2.3 US slow and steady
2.4 UK outlook to stay dreary
2.5 Advanced Asia facing sluggish growth in 2024

23
23
26
28
29

Emerging market economies’ outlook

30

3.1 Diverging prospects for EMEs
3.2 Emerging Asia shifting to a lower gear
3.3 Latin America: improving resilience in the face of economic slowdown
3.4 Eastern Europe outlook is bleak
3.5 Sub-Saharan Africa

31
31
32
33
34

Appendix: macroeconomic tables

35

Atradius economic research

37

Executive Summary
The global economy seems on track for a soft landing, as inflation is coming down
while a recession can be avoided. Global GDP projections for 2024 have been revised
upwards due to a surprisingly resilient US economy, while the effects of monetary
tightening are less severe than expected. For 2025 the outlook is also slightly better,mostly due to upward revisions for the US.

Key points:
•

•

•

•

•

•

Global growth is estimated to be 2.6% in 2024, an upward revision of 0.5%
compared to the December Economic Outlook. The US economy stands out
in its resilience due to a stronger demand outlook and higher immigration.
Growth is likely to improve slightly in 2025, to 2.8%, with improvements inpurchasing power as inflation continues to decline.
Inflation has been coming down in the past two years and is now closing inon central bank targets. At the same time there are signs that the last mileof disinflation could be a challenge, especially in the US where inflation
appears stickier. Eurozone inflation, by comparison, is on a clearer
downward trajectory and can be expected to fall below 2% in 2024.
We forecast global trade growth to improve to 2.5% in 2024 and 3% in
2025, in line with GDP growth. This comes after a rather downbeat 2023,
when trade shrank by 1.2%. Eurozone trade was hit hard in 2023 as highenergy prices hit the manufacturing and demand from China was relatively
weak. Trade growth in 2024-2025 does remain slow, however, by
historical perspective. While the Red Sea crisis does weigh on the trade
outlook, we think the risk is relatively contained at the moment.
Advanced economies are expected to grow by 1.6% in 2024, an upwardrevision. The US economy is displaying resilience, due to lower inflation
driving consumers’ purchasing power and higher immigration driving up
labour supply. The delayed effects of monetary policy tightening can befelt, but less vigorously than previously expected. For 2025 we predict a
growth rate more or less on par with this year.
The outlook for emerging market economies (EMEs) is on averagestronger than that for advanced economies, but it remains weak byhistorical standards. We expect GDP growth to stay in a lower gear at 3.9%
this year and 4.0% in 2025. Many EMEs continue to face spending
pressures related to ongoing geopolitical tensions (defence spending) andfiscal support to address negative effects from disruptions to international
trade.
We have also looked at an alternative scenario that rests on higher
geopolitical tensions. Rising tensions could lead to increased shipping
costs and higher oil prices, which then pushes up inflation. This will trigger
further tightening by central banks, leading to lower demand from firms
and households, and lower GDP growth.

3
SOFT LANDING - JULY 2024

Globalmacroeconomic
environment

1.1 A soft landing
In our December Economic Outlook, we were somewhat
sceptical about the persistence of the remarkable resilience ofthe global economy. The resilience was supported byeconomic activity in the US that held up unexpectedly. Thiswas due to the exuberance of the US consumer and therecovery of services, especially tourism in Southern European
countries.
This was not supposed to hold. First, the coffers of US
consumers, especially the accumulated pandemic savings,
were finite and lagged effects of the rapid past monetary
tightening to fight the inflation surge were expected kick in.
That would weigh on consumption, with pressure on housing
prices creating negative wealth effects. Investment would
then come under pressure and more bankruptcies follow. The
tight labour market would ease, with lower income growth forworkers. That would reinforce pressure on consumption.
Second, the recovery in services, especially international
travel, was almost complete. Manufacturing would be unable
to take over the growth baton, facing high borrowing costs
and weaker demand. Third, significant policy easing was also
not in the cards. Governments had run out of money after all
the pandemic and energy-crisis support programmes. Central
banks were not in the mood for easing either, determined toroot out inflationary pressures that had initially been so badly
misjudged according to some.1 Fourth and finally, the eruptionof the Israeli-Palestinian conflict in October added to the list ofmajor geopolitical concerns that already included RussiaUkraine and China-Taiwan, to name few. The result was asurge of uncertainty in the global economy, holding backconsumption and - especially - investment.
In view of this we thought it premature to subscribe to thesoft-landing scenario for the global economy, in whichinflation is brought under control without causing a recession.
Six months on, it seems we were a touch too sceptical at thetime. The global economy is indeed on track for a soft landing.
What explains this persistent resilience? Two of the above
factors that made us cautious turned out differently.2

lower inflation in combination with higher wages led to higher
real wages, supporting consumption. This was further
underpinned by the wealth effect of rising asset prices,
especially equities, since the autumn of last year, as the(future) easing of monetary policy started to be priced in(figure 1.1).

Figure 1.1 Monetary easing priced in equity prices

Source: Macrobond

Second, while financial markets started to bet on monetaryeasing, lagged effects of the ongoing tight monetary stance
had not kicked in as vigorously as expected. When inflation
expectations started to rise it took some time before nominalinterest rates went up, effectively lowering the real rates. That
supported economic activity, especially investment, in most of
the advanced world, with the notable exception of Europe.
Moreover, households in the advanced economies were more
protected against the interest rate rise due to the (low) fixed
rates they had locked in. This is another reason why
consumption has held up.

First, consumption has held up further, especially in the US.
Both supply and demand factors play a role here. On the
supply side, a factor arguably ignored so far, and often thesubject of heated debate in the politically arena, started to
impose itself: immigration, especially in the advanced
economies. This was enhanced by higher participation of local
workers, including elderly. The picture emerged of a larger
workforce with more spending power. On the demand side,

The other factors, the rather restrictive policy stance andgeopolitical uncertainty, have not changed much as comparedto our last outlook, or at least had limited impact on the global
economy (such as attacks on ships in the Red Sea, to be
discussed be low). It is really the labour market situation andthe still relatively muted impact of monetary tightening thathave driven the soft landing. These effects are having a lasting
effect on the forecast. The labour supply will not change
quickly, as immigrants are not expected to leave andparticipation rates are likely to remain up. Moreover, with

1

2

Such as former US Treasury Secretary Laurence Summers. See

See also World Economic Outlook, April 2024.

https://time.com/6157535/the-fed-must-do-much-more-to-fight-inflationand-fast/

SOFT LANDING - JULY 20245

inflation (almost) under control, first steps towards monetaryeasing can be expected. That would imply that for longer term
debts with a fixed rate of a sufficient maturity, by households
or firms, the impact of tightening will largely pass by. The
result of all this is that a soft landing is indeed the most likely
current scenario at this juncture.

1.2 Solid but unspectacular
growthThis picture of a soft landing for the global economy has now
been given more concrete shape. The result is higher thanpreviously expected consumption and investment growth.
This all bodes well for global GDP growth. It is indeed revving
up as we will elaborate below.

quite significantly changed. Confidence is clearly on the rise in
the US and eurozone and is approaching levels indicative of
expansion. Higher wages, lower inflation, as well as increased
employment opportunities strengthen this. Protection via
fixed rate mortgages as well as the observation that there will
be some loosening are also supportive. As opposed to this,confidence levels in China, low but at least no longer declining,largely reflect the crisis in the construction and real estate
sector where home buyers are confronted with negative
wealth effects due to price pressures. The deflationary
environment as well as high unemployment, especially among
the youth, is likewise not triggering an increase in spendingplans there.

Figure 1.3 Consumer confidence continues to improve

But make no mistake. Growth levels, though more robust, areto remain relatively subdued as compared to those seen
during the first two decades of the millennium. This is due topolicy support from the government becoming restrictive,
with only mild easing coming from the monetary side. On topof that, a revival of flagging productivity growth within firms is
at least highly uncertain, despite promising developments inareas such as artificial intelligence (AI). Geopoliticaldevelopments that affect the global economy via increased
uncertainty and fragmentation are also not helpful (figure 1.2).

Figure 1.2 Elevated geopolitical risk

Source: OECD, Macrobond

Source: Economic Policy Uncertainty, Macrobond

6

Having said that, the more robust growth picture is reflectedin confidence indicators. Starting with consumer confidence(figure 1.3), compared to the December Outlook, where wecharacterised consumer confidence as wobbly, the picture has

SOFT LANDING - JULY 2024

The difference in services and manufacturing confidence
indicators that we signalled in the previous Outlook is still
there (figures 1.4 and 1.5). Services PMIs are in expansionary
territory in the US and China and even showing an upward
tendency. The news is that the eurozone has turned a cornerand moved above 50, thus into expansionary territory as well.
The latter is not the case for eurozone manufacturing, but it
has at least moved on an upward trend since July 2023. Thishighlights the fact that the crisis in eurozone manufacturing,
especially in Germany, is not over yet. Relatively high interest
rates and faltering demand in export markets such as China
are causing this. The PMI in the US, during the autumn below
50 without a clear direction, has shifted into positive territory
as well, suggesting expansion. The Chinese manufacturing
PMI, that fluctuated around 50 for most of 2023, is now
distinctively in expansionary territory.

Figure 1.4 Services confidence signals further
expansion

Figure 1.6 Strong upward forecast adjustments
Percentage point change in real GDP growth forecast
since December 2023
1.4

United States

0.5
0.8

Eastern Europe

0.3
0.5

World

0.2
0.4

Emerging Asia

0.2
0.2

Eurozone

0.0

2024
Latin America

0.2

2025

-0.2
-0.5

0.0

0.5

1.0

1.5

Source: Oxford Economics, Atradius
Source: S&P Global, Macrobond

Figure 1.5 Upward trend in manufacturing confidence

Source: S&P Global, Macrobond

All this culminates in a relatively strong upward forecast
adjustment as compared to our December Outlook, especiallyfor 2024 (figure 1.6).

The US adjustments stand out markedly. The global outlook
has improved by 0.5 ppt in 2024, with a strong contribution
from the US: plus 1.4 ppt. Eastern Europe improves a lot as
well, by 0.9 ppt, supported by strong upward revisions for
Russia and Turkey. Emerging Asia is higher by 0.4 ppt, helpedby more favourable developments in China and India. The
upward adjustments for the eurozone and Latin America areminor. For 2025 the adjustments are generally a lot less soft,
with the - upward - global adjustment falling back to only
0.2ppt. Again, the highest adjustment is for the US at 0.6ppt,
followed by Eastern Europe at 0.5ppt. For the latter region,
adjustments for Turkey and Russia are marginal. For theremaining regions, there is little, or indeed no adjustment, asin the case of the eurozone.
The significant upward adjustments naturally push up
forecasted GDP growth levels. As already indicated, thesegrowth numbers remain below historical averages (table 1.1).
A soft landing it really is. Global growth is now at 2.6% in
2024. This is precisely the expected GDP growth level for the
US as well. Above and below that global (and US) figure are theusual suspects. The cart horse of the millennium so far,
Emerging Asia (which includes China), is above the global
average at 4.9%. The eurozone is anticipated to remain stuckat 0.8%, with Latin America only a touch higher. Eastern
Europe growth this year is above the global average. In 2025,
growth paces up a bit, to 2.8%. Especially the eurozone andLatin America show higher growth levels, though still below
the global average. Such will also be the case for the US whichfalls back to 1.9%. Growth above average is then again seen in
Emerging Asia, although again somewhat lower compared to2024, and, though marginally, Eastern Europe.

7
SOFT LANDING - JULY 2024

Table 1.1 Real GDP growth – global regions

Source: Oxford Economics, Atradius (* forecast)

1.3 Assumptions for solid
growthThe above picture of solid but unspectacular GDP growth isbuilt on several assumptions. As this changes only gradually,
the reader may recognise a few of them from the December
Outlook. We will discuss these in more detail here.
First, an elevated level of geopolitical uncertainty is here tostay, at least over the forecast horizon. We do not envisage an
end to the Ukraine war. Even a ceasefire, let alone a peacedeal, is far off. The related tensions between the NATOcountries and Russia thus remain. As do the sanctions
imposed on Russia. Tensions between China and Taiwan
continue as well. They will regularly flare up. But a full invasion
by China of Taiwan is not in our baseline scenario. Such an act
would further complicate the already complex relationshipbetween the US and China. Nor is an escalation of the conflictin the Middle East between Israel and Hamas expected. It
remains contained to the parties involved, as does the
economic damage.
Second, US-China relations remain broadly where they are.
The US views China as an economic rival, whose progress instrategic sectors, including those related to the energy
transition, needs to be checked. Moreover, the US has put anindustrial policy in place not only to protect but to develop
sectors as well. This means that access to US technology is
restricted and tariffs on certain types of traded goods, such as
recently on electronic vehicles, will be imposed if felt needed.
China will then retaliate with trade measures as well. But it will
not lead to a full-blown trade war, as both the US and China
still have an interest in bilateral trade. The EU is cautiously
developing similar views in relation to China and the need for

83

A clear example was the expansionary US government fiscal policy during andafter the pandemic. This had an inflationary impact, prompting the Fed to hikeinterest rates more aggressively.

SOFT LANDING - JULY 2024

its own industrial policy. It is a world of increasing trade
restrictions and globalisation that erodes but persists.
Third, inflation came down significantly during 2023 and ismoving to targets that the various central banks have put inplace. This is a process, though with a clear downward trend,
that varies per country or region. We expect EU inflation to bebrought down faster than the US, as the source of inflation ismuch different. Services inflation is more sticky than otherinflation components, such as energy. Wage growth isexpected to remain relatively high as compared to current
inflation to make up for past real income losses. This effectwill die out over time, helped by robust inflation expectations
at central bank targets. Moreover, immigration and increased
participation will support this. Central banks will keep a very
close eye on inflation to avoid a repeat of the surprise inflation
seen after the pandemic.
Fourth, we expect some mild monetary easing to start during2024. This is because inflation is close to being under control
by central banks. Moreover, as is the case for the Eurozone,
the economic activity is such that a resumption of inflation
caused by excess demand is not likely. For the Fed the matteris slightly different, with more persistency of inflation due tothe very presence of such a surplus. As that will wane, so will
inflationary pressures, and easing will come into play. Easing
will be mild and will consist of some rate cuts, while theshrinking of the balance sheet, which is in fact monetary
tightening, will continue. Moving back to the pre-pandemic
period of ultra-low interest rates and ample monetary easing
is not on the cards. Central banks will want to remain potent inbeing able to react by raising or lowering rates if inflation runs
too far above or below target.
Fifth, the role of the government in the economy is expected
to grow further. It is not only that governments will be willingto step in in the case of an economic crisis, but at other times
too, as we saw during the pandemic and the energy crisis
following the Russian invasion. Perhaps more importantly,
policies aimed at developing and protecting sectors that areconsidered vital to the economy or even to security, will be
implemented, particularly in the advanced economies. The US
is leading this process. It means that fiscal prudence is a lesser
priority. Therefore, budget deficits will be wider than initiallyenvisaged, with less fiscal consolidation. The latter is needed,
especially in the US, given the debt that was increasing at afast pace during the pandemic and the energy crisis. This more
prominent role that government takes on implies that central
banks are more restricted in designing their policies.3

Q4 2023 and Q1 2024, albeit marginally (figure 1.8). Clear
signs trade will emerge from the doldrums in 2024.

1.4 Trade out of thedoldrums

Figure 1.8 Global trade modestly expands in Q1

In our December Outlook we halved the global trade growthforecast for 2023 to 0.8% from 1.9% while keeping the 2024
forecast at 2.5%.4 This was in line with other forecasters, suchas the WTO, that also had noticed the global trade shrinkage
of 1.7% up to September. We were relatively optimistic becauseof a base effect: the second half of the preceding year had
been weak5 and there were clear signs of recovery from
confidence indicators. Despite the forecasted recovery later inthe year, our overall forecast for 2023 turned out too
optimistic. The year ended with a trade shrinkage of 1.2%. Thisis way out of line with GDP growth of 2.7%.

Figure 1.7 Reinforced export orders
World trade momentum vs. world export momentum
50
40
30

Source: CPB, Macrobond

20
10
0
-10
-20
-30
-40
2016

2018

2020

World trade

2022

2024

New export orders

Source: CPB, IHS Markit, AtradiusWe think this is very unlikely to last. Our forecast for 2024 isthat trade will grow by 2.5%, followed by 3% in 2025, in linewith GDP growth. The reader may notice that, whilst the trade
growth figure is unchanged, we are now much more cautious
regarding global trade than in December. Indeed, the 2.5%
increase we forecast now for 2024 is to be applied to a lower
base (of 2023) than we envisaged earlier. Apart from this'mean reversion argument' the forecast is supported byforward indicators such as the reinforced exports orders index(figure 1.7). Also, quarter-on-quarter trade growth expanded in

We can appreciate that, with the rather large difference
between forecasted trade growth and the ultimate outcome
for 2023, the reader may want some more substance for the2024 forecast.
Let's start with the picture of trade growth in 2023 (figure1.9). What we observe is an across-the-board weakness ofglobal trade, except for China (5% growth) and Eastern Europe(16.5% growth). The latter, relatively small region in tradeterms, should be viewed in perspective: following the Russian
invasion of Ukraine, trade had shrunk by almost 15%. US trade
growth remained stagnant, with Latin America and MENA
having relatively low weights in global trade. This leaves us
with the Euro Area as the main drag on global trade growth.
With 4% shrinkage and 30% weight in global trade, it seems
this region is the main culprit.

94

As usual, the figures here cover global trade in goods in volume terms.

5

A weak second half of 2022 implied that the trade level in the second half ofServices trade amounts to 42% of the value of global trade, according to the2023 would have to be relatively low to show growth for that period. It did

WTO.

show growth, but that was insufficient to make up for the growth decline in thefirst half of 2023.

SOFT LANDING - JULY 2024

Figure 1.9 China and Eastern Europe exceptions inmeagre year
% change y-o-y in 12-m rolling volume of goods trade

20
15
10
5
0
-5
-10

2020

2021

2023

01/03/2024-15

Source: CPB, Atradius

What happened there that made trade so weak? First, theeurozone was hit hard by the rise in energy prices, in particular
the gas price, following the Russian invasion. That impacted
European manufacturing severely, driving up input costs. Thiswas reinforced by the relatively weak demand from China,
where the economy is in lower gear, reducing demand.
Eurozone growth was low, particularly in manufacturing.
Precisely manufacturing goods, rather than services, are tradeintensive. Second, investment in manufacturing was weak.
This comes as no surprise. Who wants to invest in a sector
that is stagnant at best? Arguably even more important, is thehigh borrowing cost that firms are facing after the hiking ofinterest rates by central banks. This clearly hits demand forcapital goods, or investments. Production and sales of capital
goods are trade intensive as well. Third, inflation. During 2023
inflation was declining but remained relatively high. At thesame time, wage growth was catching up, but this lagged
inflation and remained short of full compensation. This meantthat real disposable income for households was underpressure. It made households cautious about spending,especially on durable consumer goods, such as vehicles andhousehold appliances. This cautiousness was reinforced by thehigh borrowing costs. Durables are often bought on credit.
One can then guess: durables are relatively trade intensive as
well, and low purchases depress trade.

10

For Europe, therefore, all important signs in support of trade
growth were red. To some extent, these factors played a rolein the rest of the world as well. But their impact was lower. In
the US, the other economy with a large weight in global trade,the impact of energy prices was much lower. This, combinedwith strong government support for the economy, supported
manufacturing. The US consumer kept up spending, including

SOFT LANDING - JULY 2024

on durables, from accumulated pandemic savings. Chinese
growth was underpinned by exports, especially of goods
related to the energy transition. The pressure from borrowing
costs did not play a role for investment growth, they remained
low. In short, GDP growth in the main region for trade was low
and driven by services. Other regions did not make up for this.
This situation of factors all pointing the wrong way is unlikely
to last in 2024. In the eurozone, GDP growth will pick up andbecome less services driven. Manufacturing is recovering as
we have already seen earlier, helped by lower (though still
relatively high) energy costs, and adjustments to makeproduction more energy efficient. China's demand isrecovering. In such an environment, investments will gradually
pick up. Disposable income for consumers benefits from thebenign coincidence of lower inflation and wage growth that isstill catching up. Moreover, as monetary easing comes in,credit will become less expensive. This all points to more
spending on durables, and increased trade.
We do not think that the attacks on shipping in the Red Sea
pose a major risk for this view. True, they have caused theaverage daily number of vessels to decline by 51% in the firstquarter of the year. Rerouting of ships via the Cape of Good
Hope pushes up journey times between Asia and North Europe
by 30%. But it only affects 9% of the world’s maritime fleet.
Moreover, despite shipping costs having gone up significantly,
at 60% higher in the first quarter compared to 2023, there areno signs of pandemic-era supply chain constraints that may
break the decline of inflation (figure 1.10). Limited global
demand for goods and additions to the container fleet support
this.

Figure 1.10 No signs of pandemic-era supply chainpressures

Source: CPB, IHS Markit, Atradius

This all sounds bullish for global trade. But make no mistake:trade growth will be slow for the longer term, fluctuatingslightly above 3%. This is far below the 4.9% average of thefirst decades of the millennium. Whilst a slowdown from sucha high level was bound to happen anyway,6 the situation has
deteriorated as geopolitical issues have increasingly impacted
trade. Research by the IMF shows that trade is increasingly
taking place within politically friendly blocs, such as the US,
the EU and other OECD countries on the one side and Russia
and China on the other. Since the start of the Russian war in
Ukraine, trade between blocs has declined by 2.4 ppt morethan within these blocs. This effect is even more pronounced
in strategic sectors such as machinery and chemicals where
the additional slowdown was 4 ppts. More specifically, trade
between the US and China is under pressure (See box for the
impact of a new Trump presidency). China’s share of US
imports has fallen by almost 8ppts since tariffs were put inplace in 2017. While some reallocation of trade has taken place
towards Vietnam and Mexico, this has only lengthened supply
chains. On top of this development, we observe a wider
increase in (often bilateral) trade restrictions. Pre pandemic,
the level was 1000 per annum; in 2022 and 2023 this level
tripled (3200 and 3000 respectively). The economic impact of
this surge in fragmentation, bilaterally and between blocs, is aloss of benefit of international trade. Trade is diverted and lesstrade created. It results in less specialisation, smaller
economies of scale and less competition. This will weigh on
trade.

were the catalysts. Even US and UK military operations tosafeguard shipping did not prevent longer journey times andhigher shipping costs, precipitating a rise in the oil price.
Besides that, deeper concerns about the resolution of theconflict came to the fore. The Brent crude oil priceconsequently moved to above USD 90 per barrel. Meanwhile
prices have calmed down again, moving to around USD 80.

Figure 1.11 Oil prices lack clear direction

Source: Macrobond

1.5 Fossil fuel prices
trending down
In our December Outlook we unfolded our view that fossil fuelprices, after the spikes caused by the Russian invasion andsubsequent sharp decline would stabilise at an above-invasionlevel. After that stabilisation, the energy transition would start
to impose itself, causing a downward trend in prices. Thatsaid, the volatility characteristic for the fossil fuel (especiallyoil) market would remain. With the energy transition ongoing,
we see no reason to change that view.
As to oil prices, volatility, rather than a clear direction, is
precisely what we have seen since December (figure 1.11). In
late autumn the market was unnerved by the escalation of theconflict in the Middle East. Soft demand and record US output
dominated. The oil price continued downwards. Even theannouncement of OPEC+7 of a production cut of 2.2 mb/d
initially failed to arrest the trend. It all changed with theattacks on the ships in the Red Sea already discussed. These6

In contrast to oil prices, natural gas and coal prices did movein a clear direction: downward (figure 1.12). This was especiallytrue of gas prices in Europe and the US. In contrast, the Asianprice is edging up slightly. The explanations vary. The US
Henry Hub fell relatively sharply in Q1 on the back of strong
domestic production and a relatively mild winter. In Europe,
the decline was even more pronounced as demand tumbled
amid high inventories. Since then, European prices,
determined by LNG prices, have edged up somewhat as
tensions, particularly those related to the Middle East, flared
up. Asian natural gas prices were slightly higher as the LNG
contracts reflected lagged effects of higher oil prices andincreased demand in the region, especially from China.
Coal prices fell markedly, with Australian coal 47% lower y-o-y,
due to robust supply and substitution away from coal in the
power sector. This is bound to continue, although the pace ofthe decline is slowing. We discuss underlying market
developments below.8

11

These high growth levels were largely driven by the reopening of China and

8 Substantial use is made of the World Bank Commodity Markets Outlook, April

Eastern Europe. That effect has now waned.

2024, when forecasts are involved.

7

OPEC+ contains the original OPEC countries plus Russia.

SOFT LANDING - JULY 2024

Figure 1.12 Natural gas prices move downward

Source: IMF, Macrobond

Oil
Demand for oil grew by 2.3 mb/d in 2023, to 101.7 mb/d,
surpassing 2019 levels for the first time. Demand in China,
representing 15% of global demand, is largely behind this. That
surge was triggered by the scrapping of the ‘zero Covid policy’in late 2022. Indeed, China accounts for 78% of the global
increase in demand.9 Recently, demand growth slowed. The
expansion fell from 2.8 mb/d in Q3 2023 to 1.9 mb/d in Q4
and 1.6 mb/d in Q1 24. Ongoing weakness in the
manufacturing and industrial sector, particularly in Europe,
plays an important role. The energy transition is also a factor,
with tighter efficiency standards and an expanding electricvehicle fleet. Support from demand related to thenormalisation of Covid policy is now fading as well. Therefore,
for the full year 2024 growth of oil demand is expected toalmost halve to 1.2 mb/d and 1.1 mb/d in 2025. This reduced
demand growth will be led by non-OECD countries, China,
Indonesia, India, Brazil and Saudi Arabia in particular. Demand
growth in OECD countries is forecast to decline mildly.

12

Supply growth in 2023 came from the United States, Brazil,
and Guyana as well as Iran. In the US, drilling efficiencies andhigh well productivity in the shale sector drove production to
exceed 20mb/d in September, defying expectations of aslowdown due to cost inflation and capacity constraints.
Altogether, the US accounted for two thirds of the non-OPEC
expansion. By contrast, OPEC+ posted a decline of 400kb/d,
driving its market share down to 51%. Iranian production

reached a five year high. Meeting the developments on the
demand side, global production growth started to slow as well,
to 1 mb/d in Q3 2023 (q-o-q), followed by more than areversal in Q1 2024. This latter largest supply reduction since
the pandemic was due to ongoing OPEC+ production cuts,10
reductions in global biofuel supply (included in the oil supply),
and weather-related disruptions in North America. The change
in OPEC + production was small, with Russian production
largely maintained, exports to China and India continuing inspite of sanctions from the US, the EU and other countries.
These trends are forecast to continue, with the supply increase
from non-OPEC to grow by 1.6 mb/d in 2024 and 1.4 mb/d in
2025 against a further fall for OPEC+ to meet the demand
increase. US production is to grow even further – by around
500 kb/d per annum.
Meanwhile inventories (held by industry as well as
governments), which act as a buffer for market disruptions,provide a mixed picture. For OECD countries they are now able
to cover 90 days of consumption. This is down from 110 prepandemic. The figure includes the so called ‘oil on water’,which is at its highest level in 15 months. It is due to reroutingof tankers in view of the geopolitical tensions in the Middle
East and the drought in the Panama Canal. The refilling of the
US Strategic Reserve, used after the Russian invasion tocontain price rises, is progressing slowly. They are now at just
14% of the pre-invasion level.

Natural gas
Global gas demand stagnated in 2023. To be precise, it
increased by a mere 0.5% or 22 billion bcm (y-o-y), only partly
reversing the fall the year before. The increase was dominatedby Asia Pacific with 24bcm, due to demand from power andindustrial sectors in China and India. North American
consumption increased marginally; Europe declined by 36bcm,
the lowest level since 1996. This was caused by lower
electricity consumption, efficiency gains, policies, and a mild
winter. But this picture of stagnation is not forecast to last.
Global demand will rise by 100bcm in 2024 and another80bcm in 2025. Demand is driven by China, but not only there.
In the other regions lower gas prices will increase demand in
the industrial and power sector as well. This is for 2024; in2025 the demand increase is forecast to be driven by
emerging economies.
Global supply changes were rather limited in 2023. Higher LNG
production continued to compensate for the lower Russian
pipeline exports. US production rose by 40bcm in 2023 another record. European supply was 15bcm lower as demand
declined amid high storage levels. Russian production declined

9 See https://www.iea.org/reports/oil-market-report-december-2023.

there are 1.66mb/d voluntary cuts by Russia, Saudi Arabia and the UAE, expiring

10 On June 2 OPEC + agreed to an extension of production cuts agreed in lateby the end of 2025. Lastly, another 2.2 mb/d is to be prolonged until September

2022, some of them extending until the end of 2025. Three sets of cuts were

and then gradually unwound over a period of a year. With these cuts, about 6%

involved. First, an OPEC + wide cut of 2 mb/d was extended for 12 months. Thenof global oil supply is hanging over the market.

SOFT LANDING - JULY 2024

by 32 bcm, mitigated by LNG exports not affected bysanctions. To make up for lost Russian supply, Europe
absorbed 70% of US LNG exports. Chinese LNG imports rose as
well, by 12bcm, with China regaining its position as the largest
LNG importer. The US has now become the largest LNG
exporter, before Australia and Qatar. Together, these countries
account for more than 60% of LNG supply.

Figure 1.13 Metals prices on an upward trend

Meanwhile, storage levels are high. This is especially the casein the EU, where they are above pre-pandemic levels, as
demand is weak and LNG imports ample. They are also
elevated in the US and Asia (Japan as well). In 2024 and 2025
storage levels are not expected to change much, as production
is forecast to stay close to demand levels. As demand rises, sodoes supply, in all regions. Even in Russia a rebound can be
expected, from a relatively low level. The US will benefit fromnew pipelines and wet gas production.11

Coal
Coal demand reached an all-time high in 2023, althoughdemand has since slowed with softer economic activity,
increased penetration of renewables-generated electricity andlower gas prices. Production rose in India and to a lesser
extent in China, while production in the US and EU declined.
Demand is expected to fall over the forecast horizon,
especially in the US and EU and to some extent in China. In
India demand continues to grow, albeit more slowly. In linewith lower demand, production falls are expected in the US,
China and Indonesia.

More bullish on metals prices
In the December Outlook we argued that the rather weakeconomic outlook would be an important factor in a further
easing of commodity prices. Like fossil fuel prices, these had
spiked after the Russian invasion. As prices remained relatively
high the reversal set in was likely to continue, reinforced by
the growth. Two factors warrant a challenge to this view. The
first is that the economic outlook is firming as we have seen.
Second, it is becoming increasingly clear that the energy
transition needs commodities, including base metals such as
steel, iron ore and - particularly - copper. This provides anupward underlying trend in commodity prices – as opposed tofossil fuel prices. It is then not surprising that we have seen aslightly upward movement in prices of these commodities
since our December Outlook (figure 1.13).

Source: Macrobond

As to the steel market, China is the dominant force, accounting
for over 50% of global steel consumption as well as
production. In 2023 steel consumption grew marginally in
China, by just 0.5%, dragged by low demand from the vital
construction sector.12 India, Russia and Turkey showeddemand growth, but it was weak elsewhere, especially inEurope. Global consumption shrank marginally, by 0.3%. Witha rebound of the global economy, consumption growth ofabout 2% per annum is forecast. The Chinese construction
sector woes will continue to put a lid on global demand, while
US and EU demand will grow. On the supply side, price support
will come from the capacity reduction in China, which willcontinue over the forecast horizon. The result is a slight
upward edge in prices, particularly in 2025.
Iron ore is used as an input for steel making and is therefore
closely linked to steel demand. The market neverthelessshowed a different dynamic due to the supply sidedevelopments. As opposed to steelmaking, where capacity
shrinks, in iron ore it expands. Especially in Australia andBrazil iron ore production is likely to increase over the forecasthorizon, along with projects elsewhere. This will put
downward pressure on prices. An inkling of this was given in
Q1 when prices dropped as increased seaborn supply fromthese countries resulted in higher stocks in Chinese ports.
Therefore, the impact on prices from steel demand gaining
traction is likely to remain limited.
Copper prices are driven by the same factors as steel and ironore: global manufacturing growth, and construction in China.
The forecast recovery of the manufacturing sector will provide

11

Wet gas is gas with some liquid.

12

To provide some, perspective, in 2023 new home starts fell 20%.

SOFT LANDING - JULY 202413

price support. More fundamentally, copper demand has astrong additional driver: the energy transition. It is vital in theelectricity grid infrastructure, EVs and solar panels. This hashelped to mute the price decline after the spike of the Russian
invasion and will continue to provide support. Demand forcopper is set increase by 3-4% per annum. Supply is scheduled
to expand, especially in China, India, the US, Uzbekistan, andIndonesia. In Europe, copper has been included as ‘strategic
material’ in the proposed Critical Raw Materials Act, which will
underpin further expansion of capacity. However, over theforecast horizon, production will closely track demand, or evenfall short of it. Upward price pressures will be the result.

Food prices slide continues
As opposed to metals prices, we see no reason to change ourview that food prices will further slide from the peak after theRussian invasion. Compared to the commodities justdiscussed, demand is a lot less sensitive, if at all, to cyclicalfactors, let alone the energy transition.13 It is predominantly
supply-side dynamics that determine prices. In that context,
the additional production triggered by the price spikes after
the Russian invasion is now complemented by robust recovery
of exports from the Black Sea region. After the collapse of theBlack Sea Grain Initiative, Ukraine has found ways to transport
by sea or land. Against this backdrop, the Oils and Meals Price
Index further declined, by 5% in Q1 2024. The Grains Index felleven more, by 8%. The Other Food Price Index, encompassing
sugar, meat, and fruits, stayed at a relatively high level,
without a clear direction (figure 1.14).

Figure 1.14 Food prices continue downward track

Source: Macrobond

14

13

Climate change is of course a factor that plays a role.

SOFT LANDING - JULY 2024

This picture will not change much over the rest of the 20242025 period. The slide in the Oil and Meals Price Index isdetermined by a large fall in soybean prices, reflecting
favourable production forecasts and very high stocks. For theGrains Price Index, which is also set to decline further, it is the
expected higher grain supplies that play a prominent role. In
contrast with this, the Other Food Price Index will lack clear
direction. While El Nińo is expected to weaken, andaccordingly its negative impact on harvests, supply
constraints in India and Thailand provide an opposite force.
Similarly, the ongoing drought conditions in Spain.

1.6 Sticky US inﬂation notindeﬁnite
The process of disinflation that we have seen over the past
two years or so should now have run its course, or at least weshould be close to it. This means that inflation should be backto its central bank target level – in the advanced economies
often at, or approaching, 2%. Is that the case? Yes, inflation
has further come down since the December Outlook. But there
are also signs that the reaching of those targets is being
somewhat hampered and can face a delay, especially in the US.
Let us now first take stock of the developments and outlook,focusing on the US and the eurozone.
Whereas the US headline inflation peak of June 2022 at 9.1%
is far behind us, the decline of inflation, or disinflation, seems
to have stalled since our December Outlook and has become
volatile, slightly above 3% (figure 1.15). The most recent May
inflation figure comes out at 3.3% y-o-y, marginally lower thanthe 3.4% in April but still higher than the 3.2% in February.
Core inflation, which excludes food and energy, has continued
its downward trajectory, and is now at 3.4%. This means the
picture we observed in December of core inflation above
headline has almost vanished. At the time we had energy
deflation. That has now turned into inflation: 3.7% in May l.
Food inflation is at a moderate 2.1%. Our forecast for 2024
reflects the slowdown in headline disinflation in 2024: we
expect the headline figure for 2024 to come in at 3.3% (4.1% in2023) and 2.5% in 2025.

Figure 1.15 Persistent core inflation in the US

Figure 1.16 Eurozone energy inflation is negative

Source: US BLS, Atradius, Macrobond

Source: Macrobond

The picture of eurozone inflation dynamics is somewhat
different than that of the US (figure 1.16). Largely driven byenergy inflation it went up more quickly after the Russian
invasion. Inflation peaked higher at 10.6% in late 2022, andthen also declined more rapidly - and to lower levels. Headline
inflation briefly went up in January this year and thencontinued its downward trajectory, edging up to 2.6% in May.
Moreover, core inflation has been and is still significantly lower
than in the US. It is currently running at 2.9%. The decline of
the energy prices since May last year has now stopped: energy
inflation is currently around zero. Food inflation has comedown considerably, from 13.7% last May to 2.0% now. We
expect headline inflation for the eurozone to continue falling,even below 2% for 2024, implying an average of 2.2% thatyear. For 2025 we see a further decline of inflation, to 1.3%.

The overall picture of headline inflation is now as follows:
Eurozone inflation was below that in the US for a considerable
number of years before the pandemic. It peaked briefly above
US inflation due to energy inflation and is now relatively
quickly reverting to pre-pandemic levels. US inflation is set tobe higher for longer, moving towards a level above the 2%
target. The latter is the real change since the December
Outlook. It is also reflected in inflation expectations (figures
1.17 and 1.18).

Figure 1.17 US inflation expectations signal somestickiness

Source: Federal Reserve Bank of Cleveland, Macrobond

15
SOFT LANDING - JULY 2024

Figure 1.18 Eurozone inflation expectations back totargetSource: ECB, Macrobond

What is behind this picture? Several factors, partly overlapping
those that were discussed in the December Outlook, play arole. Let us look at these factors and then argue how they
relate to the current view.

16

First, energy inflation. Europe was particularly hard hit by it. It
showed up in headline inflation directly via the energy
component. Then, after some time it filtered through in input
cost in sectors selling to consumers that are energy sensitive,
such as travel and hospitality. This was subsequently passed
on in higher prices, especially services prices, marking anindirect effect of inflation. Second, as prices for consumers
went up, from this direct and indirect source, so did demands
for higher wages. These further pushed up input cost,
particularly for labour intensive sectors. For sectors such as
travel and hospitality this is high, as was the subsequentpassing on to consumer prices, reflected in core inflation.
Third, consumer prices also directly rose as food prices went
up. Fourth, in the manufacturing sector, another source of
input cost to sectors, energy and wages costs also rose. This
was also the case for a number of commodity prices. This wasagain passed on to producer prices, ending up as inputs for
sectors selling to consumers. Again, a source of inflation. Fifth,
whereas the above factors are supply driven, the demand side
also plays a role. During the pandemic, demand for services
was all but blocked and all demand power switched to goods
and then, after the pandemic, switched back to services. This

14

This is confirmed by IMF research. See World Economic Outlook, April 2024,

p4.

allowed for services prices to be raised in response to the
input prices. Sixth, post-pandemic demand was also reinforced
by government support programs that helped firms andhouseholds cope with the pandemic and later the energy
prices. The former in particular generated accumulated
savings that were spent post pandemic. Seventh, recent
government programs in support of the energy transition suchas the Inflation Reduction Act in the US have fired up demand,
now from firms, as well. Stringent monetary policy (see below)
has only partially able to offset this.
How do these factors relate to the current inflation forecast?
On the supply side, energy inflation has come down, with thedirect and indirect effects on prices fading. The effect islargest where the energy inflation was greatest, i.e., in the
eurozone. Moreover, the underlying trend for energy prices is
downward, as we have argued above.14 We also see no further
wage increase rises, let alone a wage price spiral that wasfeared (figure 1.19). Food price inflation has come down aswell and will slide as we have argued. Given the dying out ofenergy price rises and wage rises, producer price inflation canlikewise be expected to come out lower. From that source, nofurther upward pressure on prices can be expected either. The
demand side is a different ball game. True, the post-pandemic
switch back from goods to services demand has ended, taking
away the possibility to raise prices for services firms. But more
importantly, rather large, accumulated pandemic savings,
government support programs and an increasing labour force
still underpin strong demand, especially in the US. This points
at persistency of inflation. Recent IMF research on the socalled output gap supports this:15 it is positive for the UnitedStates and negative for the eurozone.16 Indeed, US inflation
can be expected to come down only if the economy slows
down. We expect that happening in 2025. Inflation persistency
will erode accordingly (see figure 1.20).

15

The output gap is the difference between actual and potential output level.

Potential output is a theoretical construct, where all production factors, labourand capital are fully employed.
16

SOFT LANDING - JULY 2024

See World Economic Outlook, April 2024, p5.

Figure 1.19 The end of wage growth rises

creating uncertainty about the impact of easing, and central
bank credibility erosion in the case of premature easing.
Therefore, monetary policy was to remain rather tight, with
only very cautious steps towards easing.

Figure 1.21 First sign of monetary easing

Source: Federal Reserve, ECB

Figure 1.20 US inflation to come down in 2025

Source: ECB, Federal Reserve, Macrobond

What have we seen since then? Only one step by the ECB, in
June when the policy rate was lowered by 0.25 ppt to 4.25%(figure 1.21). Guidance was given to the financial markets thatfurther steps will be taken based on incoming data about
inflation. The Fed has left the policy rate unchanged and isalso very careful not to create expectations about the timingof future rate cuts. As for the ECB, these will depend on dataon inflation and the labour market coming in. This looks like apicture of mild easing, but it is not. The reason is that theshrinking of the balance sheet by the Fed and ECB, blown up
by the pandemic support, has continued. Since December bothbalance sheets have further declined by USD 500 billion, toaround USD 7.3 trillion and USD 6.5 trillion for the Fed and ECB
respectively (figure 1.22).
Source: Oxford Economics, Macrobond

1.7 High policy rates
unsustainable
With inflation on a clear downward trend and growth solid but
unspectacular, one would expect the aggressive tightening ofmonetary policy of the Fed and ECB to be eased rather soon.
In the December Outlook we argued this may be a
misconception. This was because of uncertainty about thecontinuation of the disinflation process, lagged effects oftightening still working their way through the economy,

17
SOFT LANDING - JULY 2024

Figure 1.22 Shrinking central bank balance sheets goeson

Figure 1.23 Long-term borrowing costs up for US

Source: Macrobond
Source: Macrobond

This process, quantitative tightening (QT), works as areinforcement of the other, better known, leg of monetary
policy, interest rates policy.17 Therefore, barring this mini rate
cut by the ECB, the monetary stance has arguably tightened,rather than eased, since December. This has kept long-termborrowing costs high and even slightly upward in the case of
the US (see below).
One can then question whether this is sustainable. We think
the answer is negative. With the inflation target coming closer
to being reached it will not be necessary, or even desirable, tokeep the monetary stance as restrictive as it is. We will now
explain why.

First consider why the current policy is restrictive. Let us focus
on the interest rate leg, in particular the real interest rate. The
real rate is the nominal rate minus inflation. This interest rateis in the range of 2% for the US and 2.5% for the eurozone. To
assess these levels one should consider that what is called theneutral interest rate, the (real) interest rate that neither
stimulates nor constrains the economy is below these actual
real rates: 1.5% for the US and -0.25% for the ECB.18 With QT
ongoing as well, both the Fed and ECB are therefore currently
putting a brake on economic growth. But we should be awarethat this policy stance is only justified when inflation is above
target. Now that inflation is moving to target over the forecasthorizon until 2025, such justification will gradually vanish.
Accordingly, the current restrictive monetary stance will nolonger be necessary. More to the point, easing will become all
but inevitable.19 Inevitable because if the central banks fail toease monetary policy, inflation is likely to trend below 2% anddeflation will loom. That would be in violation of theirmandates.
To give a hint about the extent of easing one can estimate thepolicy rate that is in accordance with a neutral monetary policy
for the inflation target of 2%. We arrive at 3.5% for the US and1.75% for the Eurozone.20 Compare these with the current
policy rates of 5.5% and 4.25% respectively, and it is obvious

18

17

It is done via only partly reinvesting maturing bonds held on the balance

19

The proviso to be made here is that the neutral rates are difficult to estimate.

sheet as well as non-renewal of special bank funding operations such as LTROs

Accordingly, the extent of easing will remain a judgement call by the central

in the Eurozone.

bank.

18

20

We have calculated the neutral rate by taking the midpoint of the estimates of

Figure 1.23 of the OECD Economic Outlook, May 2024.

SOFT LANDING - JULY 2024

Calculated by taking the neutral real interest rate plus 2% inflation target:

1.5% + 2% = 3.5% for the US and -0.25% + 2% = 1.75%.

that there is quite some room for easing of monetary policy.21
Clearly, this only holds if inflation comes down to target. Given
uncertainty related to that trajectory, the Fed and the ECB willtread carefully with easing, as we mentioned. But the direction
is clear. This will lower borrowing costs for firms andhouseholds.

Figure 1.24 Elevated government stimulus is here tostay

1.8 Government stimulus
under stress
During the pandemic and the energy crisis we saw a host of
government policies designed to keep the economy afloat andmitigate the impact of the crisis on certain groups. Thisconsiderable government intervention pushed up fiscal
deficits and debt levels.
The subsequent period of high inflation has helped mitigate
the stress on public finances somewhat. Inflation drove up
nominal incomes. Via the so-called creeping effect22, 'in realterms', government revenues increased. Nominal expenditures
remained largely flat, or only grew with inflation. With parts ofgovernment debt locked in at fixed interest rates, this resulted
in improved, but still high, fiscal deficits. Debt levels werepositively affected as well because the - unexpected – rise ininflation mitigated public debt-to-GDP ratios.23
But this inflation impact is not sufficient. Governments should
reduce expenditure as well, to bring public finances onto asustainable path. That would also support central bankpolicies in their ‘last mile against inflation’, especially in the US.
Having said that, we are somewhat sceptical as to whether
governments will indeed embark on such a fiscal consolidation
track. We expect only limited fiscal tightening, albeit withexceptions.
First, consider the advanced economies, starting with the US.
Prior to the pandemic our preferred measure of fiscal stimulus– the government structural balance (deficit) as a percentage
of potential GDP24 – stood at 6%. It doubled during the
pandemic, subsequently fell, and then rose again to almost 7%
in 2023 (figure 1.24). This level is not expected to change a lot
over the forecast horizon.

21

QT is the uncertain factor in the monetary policy mix. The balance sheet of the

Source: Oxford Economics, Macrobond

This has several consequences. First, such a level of fiscal
stimulus in an economy that is already operating at full
capacity continues to exacerbate inflation. Indeed, IMF
research shows that the contribution to core inflation is about
0.5%.25 Second, as we have already observed, the interest rate
at the long end of the yield curve, or term premium, has gone
up. This reflects the perceived risk of persistent inflation,
uncertainty about the path of monetary policy, and the US
Treasury plans to sell more bonds while the Fed continues
with QT. Third, the higher interest rates, of course, do have an
impact on financing costs for the US government which had
already run up due to Fed policy and inflation. Fourth, higher
interest rates in the US spill over to other advanced economies
as well as emerging economies almost on a 1:1 basis, meaningthat a 1% increase in US long term yields leads to a 1% increasein yields elsewhere.
For other advanced economies, the picture is a bit mixed. In
the UK and Italy, significant stimulus was provided to theeconomy in 2023 with structural deficits of 6.1% and 8.2%,
respectively. As opposed to the US, these countries are
forecast to reduce the deficit over the forecast horizon, butlevels will remain (far) above what we observed prior to the23This is because nominal debt is unchanged and nominal GDP rises in the casecentral banks will have to be further reduced. But this process will have to stopof inflation.

if it starts biting into the other element of monetary policy easings, interest rate24

cuts. At what level of QT this is, is difficult to determine. QT is a relatively new

business cycle taken as a share of potential GDP (i.e. GDP at full capacity). For

policy instrument. See OECD Economic Outlook, p 38.

example, in 202322013 (2023?) Greece reported a surplus of 3.5% of the22

adjusted government balance as a share of potential GDP, meaning that the

The creeping effect occurs if household nominal income rises and ends up ina higher tax bracket, increasing the tax burden.

The structural balance is the government balance adjusted for swings in thefiscal stance was restrictive.
25

IMF Fiscal Monitor April 2024, p 6.

SOFT LANDING - JULY 202419

pandemic. This tightening implies less stimulus by thegovernment. Spain and – especially Germany – tightened fiscal
policy in 2023 and will continue to do so over the forecasthorizon. Germany is a real outlier: it is even expected to all but
eliminate the deficit. France’s deficit was moderately high in
2023 and is expected to be reduced only marginally.

Figure 1.25 Government debt remains highMeanwhile, debt-to-GDP levels of advanced economies,
indicating the sustainability of stimulus, remain elevated(figure 1.25). EU rules consider debt levels excessive, andrequire reduction, if the debt is above 60% of GDP and evenmore if it is above 90%.26 In this context even the German debt
is excessive (61% in 2023), albeit not significantly andimproving over the forecast horizon. Also, the high debt levelof Spain (116%) is declining. But for France (123%) and Italy(151%) as well as the UK (101%) and the US (139%), the ratio
indeed worsens.
This suggests the level of stimulus provided to the economy is
not sustainable and further tightening will be needed. This will
be a challenge. Government interference is called upon in
relation: the energy transition, including industrial polices toavoid dependence on ‘unfriendly’ countries; the impact ofclimate change, especially environmental damage due toextreme weather conditions; and defence, given thegeopolitical threats. These come on top of the already known
future pressure on public finances due to ageing, such as
expenditure on health care and pensions. The relief that will
come from lower borrowing costs, as monetary policy iseased, will be no more than a drop in the ocean.
For the largest emerging economies, India and especiallyChina and Brazil it strikes us that the level of government
stimulus to the economy is rather high and remains so, as
compared to the advanced economies, barring the US. At thesame time, with debt-to-GDP levels below about 80% (India),sustainability seems less of an issue. This does not hold for
China. The rapid increase of the Chinese debt ratio by 8ppt
over the forecast horizon to 66% in combination with a highstructural deficit (7.5% in 2023) only marginally declining,raises a red flag. More details on the emerging economies’
public finances will be discussed in chapter 3.

Source: Oxford Economics, Macrobond

1.9 What if inﬂation rises?
The Outlook for the global economy that we have justsketched is predicated on the five major assumptions
mentioned earlier in this chapter: contained geopoliticaltensions, China-US relations not materially changing, inflation
gradually moving to target, interest rates gradually lower anda more prominent role for the government role in theeconomy.
The alternative scenario that we now present rests on the
biggest uncertainty the global economy is currently facing:geopolitical tensions. It is especially true of the current IsraeliPalestinian conflict, with increased shipping disruptions
further pushing up producer and import prices, and oil pricesthat are rising amid fears of escalation of the conflict. This isessentially a cocktail of trade cost and energy price rises that
we have seen before but are now exacerbated.
In such a scenario, inflation is pushed up rather than further
sliding. Inflation expectations rise by about 0.25% above thebenchmark. Central banks hike policy rates. The result ishigher yields in the bond markets. The latter initially rise by
0.9% and end up 0.5%, on average, above the benchmark.
Equity prices fall to about 10-15% below the benchmark.
The economy is negatively affected via a number of channels.
Borrowing costs for firms and households rise, rein in

20

26

https://www.europarl.europa.eu/news/en/press-

room/20240419IPR20583/new-eu-fiscal-rules-approved-by-meps

SOFT LANDING - JULY 2024consumption and investment. The latter is reinforced by a fallin equity prices. This raises the costs of capital for firms,
leading to investment postponement. Adverse wealth effects
directly bite into consumer spending. Demand for labour
declines and unemployment rises. Higher borrowing costs also
lead to a fall in house prices, resulting in weakness inresidential investment. Expected losses at mortgage lenders
go up, potentially curtailing the credit supply. Weaker banks
may get in trouble due to the higher borrowing rates that can
not immediately be passed on to lenders. This will further
restrain credit supply. Household confidence takes a hit.
In brief, we see the reverse of the factors driving the softlanding we described earlier in this chapter. Consumer
spending is depressed and the impact of monetary tightening
imposes itself now that interest rates are even higher. Global
GDP takes a significant hit (figure 1.26).

Figure 1.26 Hit to growth if geopolitical tensions
intensify
GDP, ppt difference from baseline, end-2025
UnitedStatesEurozone

World

Emerging
Asia

EasternEuropeLatin
America

-0.9
-1.1
-1.4
-1.6

-2.1

-2.1

Source: Oxford Economics, Atradius

21
SOFT LANDING - JULY 2024

Advanced
economies’
outlook2.1 More benign inﬂation
environment in advanced
economies

Figure 2.1 Positive GDP revisions in 2024 for mosteurozone countries
Percentage point change in real GDP growth forecast
since December 2023
Spain

Advanced economies are expected to grow by 1.6% in 2024,
an upward revision. The US economy is displaying resilience,
due to lower inflation driving consumers’ purchasing powerand higher immigration driving up labour supply. The delayed
effects of monetary policy tightening can be felt, but lessvigorously than previously expected. For 2025 we predict a
growth rate more or less on par with this year.

Italy

FranceGermany

Table 2.1 Real GDP growth, % - advanced economies
2025
Netherlands

2024
-0.5

0.0

0.5

1.0

1.5

Source: Oxford Economics, Atradius

Table 2.2 Real GDP growth, % - eurozone

Source: Oxford Economics, Atradius

2.2 Eurozone: mild recovery
in 2024 and 2025
In 2024 the eurozone economy is likely to enter a year of mild
economic recovery. Our latest forecast is for GDP to expand by
0.8% in 2024, from 0.5% in 2023 and 0.2 percentage points
higher than we predicted six months ago. Spain was a clear
outlier with a 1.1 percentage points upward revision. The
Spanish economy is benefiting from a booming tourism sector,
a continued robust labour market, and fiscal support as part of
the European Recovery and Resilience Facility (RRF). The
revisions in the other major eurozone countries were also
upwards, but smaller. Germany remains a weak spot due to its
sluggish manufacturing sector. For 2025 we predict a higher
GDP growth rate of 1.8% for the eurozone as a more benign
inflationary environment supports consumers’ purchasing
power.

Source: Oxford Economics, Atradius

According to the flash estimate published by Eurostat,eurozone GDP increased by 0.3% in Q1 2024, marking the first
meaningful growth figure in over a year. Among the largest
member states, Spain took the lead in Q1 of 2024, growing by
0.7%, while Germany, France and Italy all grew at about thesame speed (0.2-0.3%). According to preliminary informationfrom national sources, growth in the first quarter was driven
by expanding consumption and exports. Some countries’ GDP
figures disappointed, including the Netherlands with a 0.1%
GDP decline, mainly driven by lower exports and negative
inventory investment.

23
SOFT LANDING - JULY 2024

Recent survey data are a bit of a mixed bag. The Junepurchasing managers index (PMI) shows a slight decline ofoverall economic conditions, with the composite index
declining to 50.8. However, the composite index is still above
50, which usually signals an expansion. The manufacturingindex is still in recessionary territory (45.6), while the services
sector is expanding (52.6). The Economic Sentiment Indicator(ESI) of the European Commission in May was 96.0, a slight
improvement compared to April, but below the neutral level of100.

unemployment, broad unemployment is also at its lowest levelin years.

Figure 2.2 Employment growth is cooling, but
unemployment remains low

Inflation closing in on central bank target
After months of uninterrupted decline, there was an uptick ininflation in May 2024. Inflation increased from 2.4% in April to
2.6% in May. Energy prices and food prices, which contributed
most to the decline of inflation in the past 1.5 years, are now
making a broadly neutral contribution to inflation. Services
inflation has remained relatively high and there even was aslight uptick in May. Core inflation (CPI excluding food andenergy) went up by 0.2 percentage points in May, to 2.9%.
Despite the increase in May, total (CPI) inflation is projected tocontinue trending down. The average inflation rate in 2024 is
projected to be 2.2%, followed by 1.3% in 2025.
As the target of 2% comes into sight, the inflation picture isalso turning muddier. With GDP growing faster than expectedin the first quarter, and domestic demand recovering, inflation
could turn out to be more stubborn. But sentiment indicators
are not convincingly pointing in one direction or the other.

Some cooling of the labour market
National data indicated that the expected consumption
recovery in Q1 was unevenly distributed across countries. We
expect private consumption growth to pick up in 2024 and2025. We predict a 1.2% consumption growth in 2024,
compared to 0.6% last year. Private consumption in the
eurozone will benefit from stronger real disposable income
this year. The resumption of real wage growth (nominal wage
growth adjusted for inflation) and moderate gains in
employment account for this. Recent survey results from theEuropean Commission’s Consumer Survey show continued
improvement in consumer confidence, though from a level
well below the long-term average, as well as a steady decline
in consumers’ uncertainty about their own financial situation.
The labour market remains tight, but there are signs that it iscooling somewhat. The eurozone economy created more than
two million jobs in 2023. Firms still report relatively highlabour shortages and vacancies are also still above their longterm average. The unemployment rate has been broadly
stable in recent months, with the latest figure being 6.4%
(April 2024). The indicator for broad unemployment, which
besides regular unemployment also comprises people whohave an unmet need for employment, was at 13.2% of theextended labour force in Q1 of 2024. While higher than regular

24
SOFT LANDING - JULY 2024

Source: Macrobond

For 2024, we expect a somewhat lower employment growth.
In May, the Employment Expectations Indicator declined
compared to April, but remained above its long-term average.
Negotiated wage growth increased by 4.7% in Q1 of 2024,
marking a slightly higher wage growth than in Q4 of 2023
(4.5%). Wage growth is gradually adjusting to the reality of alower inflation rate, and we expect nominal wage growth tomoderate in 2024 and 2025. Real wage growth (nominal
wage growth minus inflation) turned positive in Q4 of 2023.
Given the declining trend in inflation, real wage growth is likely
to remain positive throughout 2024.

Better times ahead for export growth
The global economy held up better than expected in 2023, but
global goods trade slowed considerably. Goods trade was heldback by several factors, including the post-pandemic demand
shifts, a rundown of inventories, and tighter monetaryconditions that were weighing on investment spending.
Towards the end of 2023 the situation improved and eurozone
export growth turned positive. This normalisation of export
growth is expected to continue, with limited export growth in
2024 (0.6%), followed by an acceleration of growth in 2025
(4.3%).
Eurozone fixed investment grew by 1.4% in 2023, driven
largely by a carry-over from 2022. The construction sector,
sensitive to interest rates, experienced a pronounced
downturn towards the year’s end. In 2024 investment activity
is expected to gradually expand, supported by easing credit

conditions as the ECB started to cut interest rates early June,and robust financial deleveraging. Investment growth isanticipated to accelerate in 2025, with non-residential
construction investment remaining resilient, largely due togovernment infrastructure spending. However, housing
investment is projected to continue contracting due to fallinghouse prices and inventory build-up. The aggregate outlook
varies significantly across countries.

ECB implements first rate cut, but rates will stayhigher for longer
The ECB implemented a 25 bps rate cut in June. In its press
statement, it highlighted the progress it had made in lowering
inflation from double digits, when the ECB began to tighten
policy, and the further easing in price pressures over thecourse of the past nine months. However, the ECB did notcommit to a particular interest path, reiterating that its future
policy decisions will be data dependent. We expect two more
rate cuts in 2024, in September and December, and by the endof 2025 the ECB policy rate is higher than we predicted six
months ago.
Since the start of the year, the ECB balance sheet hascontinued to downsize, mainly via repayment by commercial
banks of loans and, to a lesser extent by the non-reinvestmentof the proceedings of maturing securities purchased under theasset purchase programme (APP). The ECB also indicated that
it wants to reduce holdings under the pandemic emergency
purchase programme (PEPP) by EUR 7.5 billion per month in
the second half of 2024.

Figure 2.3 Credit standards are still tightening

Recent data show there is reason for cautious optimism aboutbank lending and credit standards. The 2024 Q1 bank lending
survey of the ECB pointed to a net easing of credit standards
on mortgage lending (net percentage of -6%), thanks to easing
conditions in France. This was the first time since 2021 Q4
that credit standards on mortgages eased. Credit standards on
business loans tightened slightly according to the latest banklending survey (with the net percentage of banks reporting atightening standing at 3%). Credit standards also tightened for
consumer loans (net percentage of 9%). Bank lending dataremains somewhat weak, with bank lending to households
increasing 0.2% in March 2024 (compared to the same monthin 2023), while bank lending to non-financial corporations
grew at 0.4%.

Budget deficits to come down only gradually
We forecast the eurozone structural budget balance to decline
from 3.3% in 2023 to 2.6% in 2024 and 2.1% in 2025. For
2024-2025, expenditures are likely to decline due to lower
government subsidies to private investment and the almost
complete phase-out of energy-related measures.
Regarding the Recovery and Resilience Facility (RRF)
expenditures, these are set to accelerate over the forecasthorizon. By 2025, expenditure financed by RRF grants is
expected to be above 3% of GDP in five Eurozone Member
States (Latvia, Spain, Portugal, Croatia and Greece), while it isprojected between 2% and 3% of GDP in four countries(Lithuania, Cyprus, Italy and Slovakia) and above 1% in four
countries (Malta, France, Estonia and Slovenia).
The eurozone debt-to-GDP ratio declined slightly to 90% in
2023, driven by strong nominal GDP growth. For 2024 and2025 we expect the debt ratio in the eurozone to stabilise due
to higher costs of servicing debt and lower nominal GDP
growth. There are several member states with significantly
higher debt ratios than the eurozone average, such as Italy(148%), France (124%) and Greece (203%). On the other hand,
there are also member states with a lower debt ratio, such as
Germany (60%) and the Netherlands (50%). Although shortterm debt sustainability risks are limited, the latest yield curveshows that markets have reassessed prospects of rate cuts
and now expect interest rates to stay high for longer. The yield
curve describes the relation between the maturity of bonds
and the market-implied interest rate. The still-high interest
rate in the coming years gradually translates to higher
government expenditure.

Source: ECB, Macrobond

25
SOFT LANDING - JULY 2024

Figure 2.4 The yield curve remains elevatedFigure 2.5 US growth losing steam

Source: ECB, Macrobond

Source: US Bureau of Economic Affairs, Macrobond

2.3 US slow and steady
Despite a relatively slow start to the year, the US economic
outlook for 2024 remains strong, supported by robust
consumption. Disinflation should allow the Federal Reserve tocontinue its easing in H2, supporting a soft landing.

Weaker start doesn’t threaten path to soft landing
The government estimates that the economy grew only 1.6%
y-o-y in Q1, down from 3.4% in Q4. The weakness wasconcentrated in volatile inventories and net exports; domestic
demand indicators continued to demonstrate resilience. Realpersonal consumption expenditure remained healthy at anannualised 2.5%, and private investment accelerated. Robust
domestic demand is keeping inflation stickier than consumers
and Federal Reserve officials would like. Headline CPI inflationstood at 3.4% y-o-y in April, up from 3.1% at the start of theyear. Demand-led services inflation was the main driver, so theFederal Reserve is not yet confident that inflation is fully
under control, delaying the first interest rate cut, previously
expected in May. Jobs data have shown some signs of cooling
though: unemployment ticked up to 3.9% in April and jobs
growth slowed down to 175,000 jobs.

Looking forward, we expect GDP growth to pick up in Q2 andcontinue relatively steadily for the remainder of the year. The
labour market remains tight, underpinning consumer
spending, while business investment is also solid. We expect
GDP growth in 2024 to maintain pace compared to last year,
at 2.6%. Next year, this should slow slightly to 1.9%.

Consumer outlook remains strong, but faces morebalanced risks
Resilient private consumption has kept the wind in the sails of
the US economy since the recovery from the pandemic. This
trend should continue over our forecast period, growing
another 2.5% year-on-year in 2024. But we do expect stronger
headwinds to slow consumption growth to 1.9% in 2025.
The consumer outlook is supported by (very) gradualdisinflation and modest wage gains. We expect consumer
price inflation to ease to 3.3% in 2024 compared to 4.1% in
2023. The pace of disinflation will remain slow due toconsumer resilience on the demand side. But we’re confident it
will continue decreasing in H2 as high base effects drop out
from the year-on-year comparison, especially for the housing
component. In addition, President Biden’s new tariffs on China(see figure 2.7) shouldn’t have a significant impact on
domestic inflation. Moderating wage growth will further help
bring inflation down. At 4.7%, nominal wage growth remains
solid and exceeds inflation – but the upward price pressure isless intense compared to growth rates above 6% at the start of2023.
On the flipside, slowing jobs gains, worsening household
finances and still-high interest rates will weigh on consumer
spending. Slowing wage gains are accompanying an uptick inunemployment: to 4.0 % in May compared to 3.7% at the start

26
SOFT LANDING - JULY 2024

of the year. Unemployment should stay contained though,peaking at only 4.1% in H1 2025. The labour market outlook istherefore less hot but still decent. This is positive news forhouseholds as finances remain difficult. Years of high interest
rates have tightened access to credit for households and firms
alike at a time that household debt continued to reach historic
highs. Total household debt rose to USD 17.7 trillion in Q1, up
USD 184 billion from the quarter before. As can be seen in
figure 2.6, payment practices have begun deteriorating acrossmost classes of consumer debt. Student loan delinquency
remains low thanks to supportive policies from President
Biden whereas all other classes have been gradually ticking up
since early 2023. Loan delinquency on credit card payments
has made the most striking increase, surpassing 10% of credit
card loans for the first time since 2013.

green energy in industrial policy akin to the New Deal almost a
century ago.
The White House announced an increase in tariffs on selected
Chinese goods considered central for national security and thegreen energy transition on 14 May (see figure 2.7). Ensuring
the sustainability of unprecedented investments in thesestrategic sectors is part of the reason for raising these tariffs.
Trademark policies of the Biden administration include theInflation Reduction Act, the Bipartisan Infrastructure Law and
the CHIPS and Science Act – all of which include billions ofdollars of direct investment, tax credits, grants and loans inthese sectors, among others.

Figure 2.7 Higher tariffs target strategic industries

Figure 2.6 Consumer loan delinquency ticking up

Source: Federal Reserve Bank of New York, Macrobond
Source: The White House, Atradius

All in on industrial policy
Federal policy has taken a more hands-on approach in recent
years, with a broad political consensus towards measures that
improve national security and shore up supply chains for
defence, industrial goods and strategic minerals. Part of thishas entailed historic investments and subsidies for theseindustries while another part has entailed protectionist
measures to insulate domestic firms from foreign competition.
President Biden has continued the protectionist bent
introduced by President Trump. Not only has Biden maintained
the Trump-era tariffs on China, but his administration has
expanded import restrictions. Biden’s tariffs target only about
USD 18 billion worth of imports compared to USD 350 billion
under Trump, but the penalty is much higher. Moreover, thefederal government has opened the tap of subsidies for US
companies in strategic industries, particularly high-tech andWe expect this protectionist style policy to continue over theforecast period and to only increase in 2025 should former
president, Donald Trump, be re-elected in November. Boosting
activity in strategic sectors such as energy, critical minerals
and semiconductors will remain policy priorities for the US
regardless of political outcomes, and we expect the boost to
the real economy through investment will be increasingly felt
beyond 2025.

Sustaining public investments and wide deficits
The landmark spending bills of the Biden administration willcontinue to fuel public investment in 2024 and 2025. Whilethe contribution to economic growth in our forecast period
will diminish due to higher base effects, the focus ofinvestments in physical infrastructure, high-speed internet
connectivity and clean energy sectors should enhance US
productivity.

SOFT LANDING - JULY 2024

27

Ongoing public investments will sustain high government
deficits though. As shown in figure 1.23, its structural balance
as a percentage of GDP will remain in excess of 6% in 2024.
This indicates an expansionary fiscal policy and is the loosest
among advanced economies. We expect the US fiscal stance tocontinue in 2025 under a Biden presidency and to widen
further into stimulus territory in the case of a Trump victory.
Federal debt will remain well above 100% of GDP and interest
costs on that debt will also continue to rise. Political tensions
will remain a cause for concern for US debt sustainability as
the highly politicised debt limit will be reimposed in 2025.

Figure 2.8 Real incomes growing for past year in UK

2.4 UK outlook to staydrearyWe’ve revised up our forecast for the UK economy to 0.9%
from 0.6%, spurred by stronger-than-expected consumer
spending. Growth should pick up to 1.3% in 2025 as politicaluncertainty eases, but remains structurally weak.

Cost-of-living relief allows for some cautious
optimism
The UK economy grew more quickly than expected in Q1 andwe expect that momentum to be sustained in Q2. Consumer
spending is the main driver of the recovery, with significantly
lower inflation boosting spending power (see figure 2.8).
Headline inflation rose 2.0% year-on-year in the 12 months toMay, its lowest level in three years and down from double digit
inflation a year and a half ago. Household energy bills arenearly 20% below their peak. Real wage growth and improved
consumer confidence are causes for optimism that consumer
spending will persist in H2. In addition, the composite
purchasing managers’ index (PMI) remains in positive territory(51.7 in June) and the manufacturing component reached a
two-year high, suggesting a firming of the economic recovery.
The economic recovery will remain weak though, as
headwinds from tight fiscal policy and past interest rate hikes
weigh on demand. Moreover, the most recent inflation data
was not sufficiently good news: while CPI inflation reached thetarget rate of 2% in May, stubborn services inflation persisted.
This motivated the Monetary Policy Committee to keep its
policy rate on hold at 5.25% in its June meeting, postponing its
first expected rate cut from June to August. We now anticipate
a total of 50 basis points worth of cuts by the end of the yearwith a chance of a third 25 bp cut if pay and inflation data
slows more quickly than expected. The BoE should be able tomove sooner and cut rates a bit more quickly than the US
Federal Reserve: the weaker economic situation in the UK has
allowed labour market tightness to fade faster. The BoE would
also be joining the ECB, Swiss National Bank and Swedish
Riksbank in cutting rates before the Fed.

28
SOFT LANDING - JULY 2024

Source: Macrobond, UK ONS

The positive impact of monetary loosening will only be felt in
2025, though, as debt interest payments rise this year fromprevious tightening. We expect real GDP growth to pick up to
2.0% as the political situation settles down and monetary
policy loosens. Actual GDP will continue to lag its potential due
to structural limitations such as low investment, poor
productivity and trade barriers created by Brexit.

Tight fiscal outlook regardless of political outcome
While the UK has had some tentatively positive economic
news, PM Sunak unexpectedly called general elections for 4
July (the date of publication). They were previously expectedby the end of the year when the Tories may have been able toleverage progress on inflation and possibly even additional tax
cuts in the autumn budget. But with low approval ratings andlimited scope for such policy successes to boost them in the
coming months, the government has brought elections
forward.
Markets’ reactions to the surprise announcement haveaccordingly been limited and we do not expect the results ofthe election to have a significant impact on our economic
outlook. The reason is that the opposition Labour Party has asignificant lead in the polls. At this point, its victory appears to
be all but a foregone conclusion. Public dissatisfaction with
the Conservative government is high, especially due to thestate of public services and recent political scandals andeconomic volatility. This was clear in the May local elections inwhich the Conservative Party had its worst performance in 40
years.
The economic policy under either party is likely to be similar in
the forecast period. Following the mini-budget crisis of 2022,
both parties have committed to adhering to the existing fiscal
rules. The government’s tight fiscal stance has slightly slippedsince 2022, as public spending has hardly been adjusted inline with high inflation. Addressing this will be one of the main

challenges for the incoming government. Furthermore, withhighly contentious issues like Brexit and Scottish
independence no longer on the ballot, the stakes are lower thiselection cycle. Given the well-established independence of the
Bank of England and expectation of policy continuity, we
believe the impact of the early elections on the near-term
economic outlook will be limited.

Figure 2.9 Japan ends its negative interest rate era

2.5 Advanced Asia facing
sluggish growth in 2024
Japan’s economy is slowing, as one-off factors that boosted
2023 growth fade, but robust wage growth should help shore
up economic momentum by 2025. Stubborn inflationarypressures in Australia and New Zealand are keeping monetary
policy there tighter for longer, threatening their path to a softlanding.

Japan: fragile recovery finding its footing
Japan’s economy is steadily recovering from the pandemic,
with price pressures picking up after three decades of low
inflation. GDP growth exceeded expectations last year at 1.9%,
finally bringing Japan’s economy back to its pre-pandemic
size. The recovery has been uneven though. Goods andservices exports have led growth, buoyed by a weak yen,whereas the domestic demand components, private
consumption and investment, are still below their 2019 peaks.
We expect growth to shift back down to 0.5% this year, due tothe ending of a one-off tourism boom in 2023, and to reach
0.9% in 2025. But that growth will become more broad-based.
Export growth will continue to support the recovery thanks to
the upturn in the semiconductor chip cycle. Private
consumption should also pick up from H2 2024 on, partly
driven by a whopping 5.6% pay increase agreed in the “shunto”
spring wage negotiations. Rising wages reflect chronic labour
shortages but will also help real wages return to growth after
two years of decline. Inflation has exceeded the 2% target
since April 2022 which has squeezed consumers and allowed
the Bank of Japan to end its negative policy rate era which
was in place since 2016. Inflation is expected to stay above 2%
through the end of 2025 and the Bank of Japan will keep its
policy rate at 0% at least for the rest of the year. The BoJ has asingle mandate of maintaining price stability, in contrast to theFed’s dual mandate also targeting employment. But we expect
it to hike rates only very gradually with an eye on preserving
the momentum of the economic recovery, as that will also
ensure more sustainable, demand-driven inflation.

Source: Macrobond, Atradius

Australia: slowing growth and persistent inflation
Australia is currently grappling with a challenging economic
situation characterised by sluggish growth and still-highinflation. After nearly halving to 2.1% in 2023, GDP growth isset to slow even further to 1.3% this year. Past monetary
tightening is dragging on domestic demand and sticky
inflation continues to squeeze real purchasing power. Inflation
surprised on the upside, ticking up to 3.6% in April, but theReserve Bank of Australia (RBA) will keep its policy rate on
hold at 4.35%, the level it’s been since November. Similar to
the BOJ, the RBA is attempting to avoid further tightening topreserve labour force momentum as unemployment ticked up
to 3.8% in March. We expect growth to pick up to 2.7% in 2025,
largely supported by a much easier fiscal stance in 2025.
Fiscal subsidies aimed at relieving cost-of-living pressures will
help bring down headline inflation next year but the
surprisingly stimulatory budget will do little to help tame core
inflation. Thus we expect rates to stay higher for longer inAustralia with a first cut only coming in 2025.

New Zealand: stagnation in 2024
New Zealand’s economy is expected to stagnate with 1%
growth in 2024, after a weaker-than-expected end to 2023.
The country entered a technical recession in Q4 2023 as
output contracted slightly for the fourth time out of the last
five quarters. High migration rates have led to record
population growth, but households have been facing intense
headwinds of high inflation and negative real wage growth.
While the worst is likely behind us, consumer confidence
remains at historic lows, inflation remains at 4%, andunemployment ticked up to 4.3% and is likely to rise to 5% by
year’s end. In this difficult environment, the Reserve Bank of
New Zealand (RBNZ) is likely to keep its policy rate at a 15year high of 5.5% until Q1 2025. Easing financial conditions
should help the recovery take hold with 3.5% growth in 2025.

29
SOFT LANDING - JULY 2024

Emergingmarketeconomies’
outlook3.1 Diverging prospects for
EMEs
The outlook for emerging market economies (EMEs) is on
average stronger than that for advanced economies, but it
remains weak by historical standards. We expect GDP growth
to stay in a lower gear at 3.9% this year and 4.0% in 2025.
Many EMEs continue to face spending pressures. Ongoinggeopolitical tensions may lead to further increases in defence
spending and fiscal support to address negative effects from
disruptions to international trade. Industrial policies, including
government subsidies, may also emerge to foster importsubstitution. As interest rates have risen globally,
governments of EMEs face higher interest payments which are
expected to remain higher in the medium term compared to
pre-pandemic levels. Low-income countries in particular may
face debt sustainability issues.
Behind the headline figures lies substantial heterogeneity.
Emerging Asia is set to lead other regions again in terms ofGDP, though growth is subdued historically due to external
headwinds. Still, China and India are projected to contributejointly about half of world growth in 2023 and 2024. Latin
America, struggling with structural weaknesses and politicaluncertainty, will lag other regions, especially in 2024. Only in
MENA and Sub-Saharan Africa will economic growth accelerate
next year.

China: structural weaknesses ushering in slowdown
China’s economy is gradually cooling off from a strong 5.2%
expansion in 2023. Momentum carried into Q1 2024 due tostimulus-supported industrial activity, which rose 6.1%. The
services sector also grew 5%, contributing strongly to growth
as consumer demand shifts from goods to services. But we
expect this momentum to lose steam in the remainder of theyear. This is partially mechanical, as declining capacity
utilisation rates accompanying strong production in Q1 meanthat inventory destocking should weigh on GDP growth in the
coming quarters. Moreover, the property sector is plagued byweak buyer demand for new homes and worsening financing
difficulties affecting developers. The yuan is also depreciating,and disinflation is flirting with deflation which could causehouseholds to defer spending. Inflation expectations are
already trending downwards, as is demand for consumer
credit and discretionary retail items. The People’s Bank of
China (PBOC) will maintain a loose monetary policy stance,
accepting yuan weakness to avoid tightening domestic
financing conditions.

Figure 3.1 Consumer confidence in China slowly
recovering from low levels

Table 3.1 Real GDP growth, % - EME regions

Source: National Bureau of Statistics of China
Source: Oxford Economics, Atradius

3.2 Emerging Asia shifting
to a lower gear
Emerging Asia’s economic outlook has brightened comparedto the start of the year, thanks to retreating inflation. But westill expect a significant slowdown to 4.9% in 2024 and 4.7% in
2025 – higher than any other global region but below
Emerging Asia’s historical trend – dragged down primarily by
China’s economic slowdown.

There are some tailwinds for Chinese growth, though. Firstly,
the government is supporting growth with fiscal expansion,
especially targeting the manufacturing sector to expand
productive capacity. On the flipside, this could put further
downward pressure on prices as domestic demand wanes.
Secondly, external demand for Chinese products is increasing.
Despite rising tariff risks, we still expect 6.3% growth in goods
exports this year. But we do not expect these trends to be
sufficient for the government to reach its target growth rate of“around 5%” with total 2024 growth reaching 4.7%. In 2025,
we expect a more meaningful slowdown to 4.1%.

31
SOFT LANDING - JULY 2024

India: somewhat cooling growth
In India, growth in 2024 is estimated to slow to 6.3% from
7.7% in 2023, but it remains the fastest growing emerging
market (see table 3.2). GDP growth in India is likely increaseagain in 2025 to 7.2%. In the coming years, households are
expected to shift their spending focus more towards services,
including travel and leisure, rather than physical goods. Even
with the uptick in interest rates, the credit expansion tohouseholds is projected to continue robustly through 2024
and 2025, indicative of a surge in market confidence. Inflation
softened marginally in March. The headline CPI index rose by
4.9% year-on-year, down from 5.1% in February. We expect tosee a moderation in inflation from 5.7% in 2023 to 4.7% in
2024 and 4.5% in 2025. Inflation is still above the central
bank’s midpoint target (4%). We do not expect a rate cut in
India before Q3 of 2024, and we forecast a gradualnormalisation in monetary policy settings.

Table 3.2 India is leading the major emerging markets
in GDP growth, %Source: Oxford Economics, Atradius

Investment, the main growth engine of 2023, is set to cool
given the smaller boost from public capital expenditure, while
the private investment cycle will likely only revive at a gradualpace. Public spending on infrastructure was a major
investment driver in recent years, but support is set to wane
amid fiscal prudency pledges. Although the necessary
conditions are in place for a more broad-based revival of theprivate investment cycle, we expect the uptick to be gradual,
as financing conditions will likely remain tight for longer andthe demand outlook is uncertain. The still elevated interest
rates limit the recovery in private investment in 2024 and2025. An anticipated moderation in external demand will curb
goods export growth in 2024, but exports in certain
segments, such as pharmaceuticals, will perform well. Overall,export growth is to increase in both 2024 and 2025.

3.3 Latin America:
improving resilience in theface of economic slowdown
Latin America and the Caribbean face the weakest growthprospects among EME regions but this masks the remarkable
resilience the region has demonstrated through recent global
volatility. Adverse weather conditions will keep growth muted
at only 0.9% this year before picking back up to 2.3% in 2025.

Brazil: adverse weather events exacerbate Brazil’s
economic challenges
Brazil’s resilient economy is facing increasing headwinds thatwill weigh on GDP growth in 2024 and 2025. Last year,
growth surpassed expectations at 2.9%, on the back of strong
household spending. Inflation has been declining steadily forthe past two years from double-digit highs (see figure 3.2),
and the central bank made the first step in relaxing financing
conditions already in August 2023. While we expect this tohelp keep household spending firm, it is losing momentum
over our forecast period. Devastating floods in southern Brazil
will cause inflation to decline more slowly than previously
expected, in turn slowing the pace of monetary easing anddragging on growth. The most impacted state, Rio Grande doSul, is a significant producer of grains. The disruption tosoybean and rice supply will push up food inflation. We now
expect inflation to stay at nearly 4% by the end of 2024 andconverge to the central bank’s 3% mid-point target only in
2026. With inflation higher than expected, we now expect thecentral bank to cut its interest rate to only 9.75% by the end of
this year (previously 9%) and 9% in 2025.

Figure 3.2 Inflation in Brazil is coming down graduallySource: IBGE, Macrobond

32
SOFT LANDING - JULY 2024

Governability also remains a challenge for Brazil’s economic
outlook. President Lula is governing with a minority inCongress. We expect Congress to remain gridlocked at least
until the mid-term elections coming up in October 2024. Thisdelays much-needed reform bills into 2025. Fiscal risks arealso rising as the fiscal consolidation efforts are so far
insufficient to meet targets. Moreover, the government hasrelaxed its fiscal targets for 2025 and beyond, raisingconcerns of its commitment to rein in spending, andpotentially bringing debt higher from 76% of GDP currently to
82% in 2025. Corruption is also an ongoing concern, following
the overturning of two high-profile convictions from ‘Car
Wash’, the landmark anti-corruption probe. This will alltranslate to a steady slowing in GDP growth to 2.1% in 2024,
before picking up slightly to 2.4% in 2025 as politicaluncertainty declines and households benefit from loosening
financing conditions.

Mexico shifting to a lower gear
Mexico outperformed regional peers in 2023 with 3.2%
growth, but we expect momentum to ease this year to 1.9%.
The strong 2023 performance as a basis for comparison
partially explains the slower growth. More tangibly, growing
caution among Mexican consumers and the end of key
infrastructure projects are dragging on growth. Mexico’s
outlook is also clouded by the slowdown in the US, its primaryexport market and source of remittances. As US growth
disappointed in Q1, so did remittances which contracted forthe first time on an annual basis since the pandemic. Fiscal
risks have also continued to increase, as government spendingrose 20% year-on-year in Q1 ahead of the elections. Claudia
Sheinbaum, a close ally of President Andrés Manuel López
Obrador, won the June elections with a solid victory. This will
ensure policy continuity which risks a further deterioration ingovernment finances. The Banco de México (Banxico) made its
first rate cut of 25 basis points in March that brought thepolicy rate to 11%. Since then though, Banxico has opted tokeep rates on hold, given sticky inflation and higher-for-longer
rates in the US. The monetary policy stance will remain
restrictive, easing only gradually to around 10% by year-end
and accelerating in 2025, should disinflation continue.

elections in March 2024. Turkey’s high inflation was the main
factor behind the election result. We expect economic growth
to slow from 4.5% in 2023 to 2.5% in 2024. The long-runningconsumer boom is expected to run out in 2024. The
substantial salary and pension hikes announced in January2024 will support consumer demand. However, as part of ashift to a more orthodox footing, the government has started
to increase taxes and interest rates, and is limiting access tocredit, which will affect consumer spending and government
expenditure. Inflation is still high at 68% year-on-year in March
2024. High inflation is driven by the weakening lira, largescale government spending and generous wage and pension
increases.
The central bank has been pursuing a tightening monetary
policy since June 2023 (see figure 3.3). In March 2024, thepolicy rate was increased by 500 basis points to 50%. We
expect that the policy rate will be kept at this level into 2025.
In the long term, this will probably contribute to coolinginflation, although inflation will remain above the official
target of 5% in the coming years. Furthermore, the central
bank is expected to continue winding down its interventions in
the FX market, and unpicking the many regulations that it has
imposed on banks to deter the use of foreign currency andcontrol the level and direction of credit.

Figure 3.3 Turkish rates to stay high as inflation
persists

3.4 Eastern Europe outlook
is bleakOur growth estimate for Eastern Europe in 2023 was subject
to the largest revision (+1.3 ppt) compared to last July as
Turkey shifted to orthodox policy and Russia skirted
international sanctions. But the outlook for the region in 2024
and 2025 remains very cloudy.

Turkey: ongoing high inflation
In Turkey, Erdogan and the ruling AKP-coalition sufferedsignificant losses to the main opposition CHP party in local

Source: Macrobond

The anticipated slowdown in domestic demand will bear down
on import growth in the coming months, helping the externalbalance. Meanwhile, a still-strong tourism sector and arecovery in external demand will support trade and services
exports. This contributes to a narrowing of the current
account deficit to 2.1% in 2024. But it remains a challenge to

33
SOFT LANDING - JULY 2024

attract sufficient capital inflows to cover the remaining deficit
and service foreign debt without drawdowns of FX reserves.

Russia’s economy performs above expectations
Russia’s economy continues to perform above expectations,with 3.6% growth in 2023 and an expected 3.2% growth in
2024. Ukraine's Western allies expect Russia to launch a newlarge-scale offensive this summer. The army is trying to avoid
new mobilisation at all costs and is instead relying on
conscription and expansion of the contractual army. This iscausing the labour market to tighten further, driving up labour
shortages and fuelling nominal wage growth. Frontloaded
fiscal spending and rapidly growing wages are contributing tostrong domestic demand. Along with rising hydrocarbon andnon-hydrocarbon revenues, reflecting demand strength andRussia's adaptation to Western sanctions targeting its oil
sector, this supports GDP growth. Urals oil is consistently
trading above the EU-G7 price cap of USD 60 per barrel. The
discount of Urals to European brent has stabilised to around
USD 10 per barrel (see figure 3.4).

Figure 3.4 Spread between Brent oil and Urals blend
has narrowed to USD 10

pressure on the federal budget. Military spending has been
hiked to 6% of the 2024 budget, up from 3.9% in 2023.
Defense spending is one third of the total government
expenditure for the year, as Russia prepares for a protracted
war, and reconstruction in the annexed territories.

3.5 Sub-Saharan Africa
South Africa: elections deliver the worst result for
the ANC in 30 years
We expect GDP growth in South Africa in 2024 to remain on
par with 2023 (0.7%). The prospect for 2025 is slightly betterwith an expected 1.4% GDP growth. South Africa’s election on
May 29th has delivered a major shock to the African National
Congress, which has been in power for 30 years, after its voteshared plummeted to 40.2%. The ANC has agreed to form a
coalition with the centrist, pro-business Democratic Alliance.
On the policy front, the new government will remain focusedon structural reforms to alleviate growth-inhibiting electricity
shortages and transport bottlenecks, in partnership with theprivate sector.
South Africa’s economy has performed poorly since thepandemic, while inflation continues to erode South Africans'purchasing power. The inflation picture is improving, however,with April’s inflation figure at 5.1%. Factors keeping a lid on
inflation include tight monetary policy, spare industrial
capacity, a persistent output gap and strong retailcompetition. Rising electricity tariffs will remain a major
inflation driver. Although inflation is moving in the right
direction, it remains above the midpoint of the target range(4.5%). The central bank is reluctant to cut interest rates too
soon and has kept the policy rate unchanged at 8.25% after
May’s meeting. We think the first rate cuts will not bedelivered before Q4 of 2024.

Source: Macrobond

Headline inflation remained sticky at 7.7% in March. It is likely
to increase further in the coming months to 8%, where wethink it will peak. The Russian Central Bank has signalled that
it will keep its policy rate at 16% in the near term. We don’t
expect a policy rate cut before Q3 2024 and possibly later if
labour market tightness persists. The central bank intervened
to stem the fall of the rouble at the start of 2024, and further
interventions in foreign-exchange markets are likely. The riskof capital controls will rise with persistent rouble weakness.

34

Russia's fiscal capacity will be stretched in 2024. The highcosts of the war and sanctions on the economy will put

SOFT LANDING - JULY 2024

The latest sentiment indicators show somewhat improving
business confidence, albeit from low levels. The current
account is likely to remain in deficit in 2024 (1.9% of GDP), but
the shortfall is relatively small. The persistence of an overall
current-account deficit in 2024-2025, will leave South Africa
to some extent reliant on financial inflows to plug the gap. Buta business-friendly government could unlock fresh investment
to give the economy some legs to run in H2 2024. The coming
years economic growth is forecast to remain positive, but still
constrained given the problems with state-owned enterprises,
including Eskom (power) and Transnet (rail and ports).

Appendix: macroeconomic tables

Source: Oxford Economic, Atradius

36
SOFT LANDING - JULY 2024

Atradius economic researchJohn Lorié
Chief Economist
john.lorie@atradius.com+31 (0)20 553 3079

Dana Bodnar
Economist
dana.bodnar@atradius.com+31 (0)20 553 3165

Theo Smid
Senior economist
theo.smid@atradius.com+31 (0)20 553 2169

37
SOFT LANDING - JULY 2024