Global trade to rebound modestly: Allianz

Global trade is set to rebound modestly after two consecutive years of below-average global GDP growth, said Allianz recently when releasing its Global Economic Outlook 2023-25.  

As European countries are emerging from trade recessions and Asian countries (ex-China) are still benefiting from the reshuffle in global value chains, they will lead the rebound, the firm noted. 

In addition, destocking in the global business cycle should come to an end in 2024, also contributing to the rebound, the firm added.

While high expectation of China’s economic rebound gave hopes for global trade earlier this year, China is still grappling with a distressed property market and consumer confident remains muted, The firm pointed out. 

To offset some of its losses in global export markets and soft domestic demand, China has increased and will maintain policy support, while also increasing investment abroad to consolidate its influence, Allianz added.

Besides global trade, Allianz also offers predictions for various aspects of the global economy.

The firm expects a soft landing in the US and the Eurozone to muddle through, with increasing risks of a prolonged recession in H1 2024 for the Old Continent as only 60% of the increase in key policy rates has been transmitted to borrowers in Europe. 

THe firm forecasts 2024 GDP growth at +1.4% in the US, +0.8% in the Eurozone, +4.6% in China and +0.6% in the UK.

Other major predictions by Allianz include the following.

Thanks to softening demand and positive base effects on energy and food, disinflation is gaining traction. 

• Central banks are predicted to pivot earlier than expected by economic forecasters (i.e. summer 2024) but later than market expectations as it takes time to cool down a hot labour market. 
• Indeed, services inflation and wage growth continue to fuel inflationary pressures, especially in the US. 
• By end-2024, we expect policy rates to stand at 4.5% in the US, 3.5% in the Eurozone and 4.5% in the UK.
• Fiscal safety nets are unwinding in Europe as most countries have committed to moderately reign in fiscal deficits. 
• The German government managed a last-minute budget agreement, but we do not expect a major boost to economic activity from the deal. However, in the US, fiscal consolidation remains more talk than walk for now.
• Most emerging markets managed to successfully curb inflation while battling higher financing costs and sometimes tense social backdrops. 
• Managing the descent in rates, a weaker dollar and lower twin deficits while benefiting from friend-shoring should be prove easier. But it will not be a walk in the park as policy mistakes could derail previous success.
• Corporates have managed to navigate the higher yield environment quite successfully so far. 
• However, insolvencies are picking up in most countries, suggesting the large divide between SMEs that are facing liquidity and profitability issues and larger firms that remain resilient. 
• Going forward, rising rates should continue to bite profitability and liquidity, while revenue growth should soften. 
• Some sectors such as real estate, renewable energy and construction are in the midst of the storm, with high leverage, depreciating assets and large financing needs for both opex and capex.
• Despite a challenging environment and some financial cracks under the surface revealed by the short-lived banking crisis in the US, markets have been dismissive of mounting liquidity pressures. 
• Allianz expects the liquidity squeeze to intensify and add pressure on corporate spreads. However, the risks do not seem systemic as some buffers remain on both the corporate and policymaker sides.