After two years of strong post-covid growth (2021 and 2022), and a global economy boosted by various governments’ support, 2023 was the year of a return to reality. The debts incurred during the crisis have to be repaid and there has been a catchup of insolvencies.
In 2024, insolvencies are expected to rise by 10% worldwide (compared with 7% in 2023), and global GDP growth will remain low at around 2.3% (compared with 2.7% in 2023). This context of «soft» growth will be accompanied by margins that will remain under pressure (with inflation still high), and financing conditions that will not ease until the 2nd half of 2024.
For 2024: our main focus will be political risk for 3 reasons:
- 2024 = Election year: 60% of the world’s GDP will be affected by elections this year, and no region will be spared: Europe, United Kingdom, United States, Russia, in Asia (Indonesia, India, South Korea), and also in Latin America (Mexico, Uruguay). Some might be dominated by nationalist and protectionist trends which might generate instability and possible shocks for companies, both in terms of supply as well as sales.
- Resurgence of political risks: there has been an increase in political violence e.g. in the Red Sea, when rebels attacked container vessels causing supply chain disruption and increased costs; conflict between Israel and Palestine and ongoing war in Ukraine. More recently the Mexican government expropriated Air Liquide’s hydrogen plant at a Pemex oil refinery citing the need to ensure Mexico’s “energy sovereignty”.
- Indirect causes of political risk: the impact of political risk on insolvencies can be significant. For example, international sanctions can lead to a shortage of supply of raw materials or energy, leading to higher costs and inflation, which in turn leads to a squeeze on corporate margins and then potentially to more insolvencies.
This quarter there were 2 significantly downgraded countries:
- Israel, whose G-Grade has risen from 3 to 4: the economy is weakening against a backdrop of war, rising interest rates and inflation, squeezing both households purchasing power and corporate margins.
- Niger, whose G-Grade rose from 8.25 to 9: international sanctions following the coup d’état had a severe impact on the country’s economy.
Several countries were reclassified this quarter: Greece, Albania, Croatia, Cyprus, Georgia, Namibia and Romania.