Allianz – Global Economic Outlook, 2023-25

Allianz's Global Economic Outlook for 2023-2025 predicts that a recession will be mostly avoided, but global economic activity will experience a trough at the beginning of the year, followed by below-average growth in 2024-2025. Consumer demand will remain weak due to negative wealth effects and increased precautionary savings. Global trade has declined to its lowest level in the past two years due to destocking in the manufacturing sector. However, a timid recovery from recession is projected, with a growth rate of -0.6% in 2023 to +3.3% in 2024. The report also highlights the expected GDP growth rates for various countries. The US is anticipated to have a sluggish growth rate of +1.1% in 2024, the slowest since 2009, followed by +1.7% in 2025. Germany and France will have a growth rate of only +0.7%, followed by +1.6% in 2025. China's growth rate is expected to slow down to +4.7% and +4.2% in 2025. Emerging markets will also experience a growth deceleration below pre-pandemic levels, with a growth rate of +4% and +3.9% in 2025. In terms of inflation, it is expected to be mostly controlled, with global inflation projected to fall to 4.3% in 2024, down 2 percentage points from 2023 levels. However, it is expected to remain above 3% in 2025. Commodity prices, particularly energy, may bring volatility in the short term. Wage growth catching up with corporate profitability may also impact companies, especially in Germany and the UK. The US dollar is expected to remain strong, putting pressure on other currencies. As a result, any changes in key interest rates are likely to be gradual and cautious. The report also mentions the politically busy year ahead with multiple countries going to the polls, which may affect the monetary stance and fiscal consolidation measures. Corporates are facing reducing demand, increasing costs, and reduced pricing power, leading to a squeeze in profitability. Business insolvencies are expected to increase, particularly in Western Europe. Capital markets are grappling with macroeconomic and microeconomic forces, with investors remaining cautious about economic uncertainty and policy decisions. Despite this uncertainty, investors believe in the resilience of corporate balance sheets and expect positive total returns for equities and tight credit risk for corporate credit. The carry trade in emerging markets is expected to remain strong but country selectivity will be crucial for performance.