Despite stubborn inflation and still-high interest rates, the US economy has proved resilient so far in 2024. However, the Federal Reserve (Fed, the US central bank) will continue to try to cool the economy and reduce inflation. The target for inflation is 2% and it is currently above 3%, which is still too high. EIU expects US GDP growth to grow by 2.2% this year and by 1.8% in 2025.

“EIU’s core forecast is that the Fed will cut rates in September and then again in December this year but risks remain. If inflation remains stubborn, it is possible that the Fed will hold rates throughout the year and there is a chance that it could even raise rates. As we have seen in recent years, for example with the covid-19 pandemic and Russia’s invasion of Ukraine, unforeseen events could lead to unexpected outcomes.”

Steven Leslie, global principal economist, EIU

In addition, the US economic outlook will influence the upcoming US elections but to a lesser extent than traditionally seen. EIU narrowly expects Biden to be reelected as he has a strong story to tell on economic growth and employment rates. However, inflation and higher prices for basic goods are key factors affecting voting behaviour. There are also many non-economic issues, such as the culture wars over immigration, that are becoming increasingly important to voters. 

The analysis and forecasts featured in this video are available in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify potential opportunities and risks.

The post Global Outlook: the path ahead for the US economy appeared first on Economist Intelligence Unit.

Four sovereigns in Africa have pursued debt restructuring under the G20’s Common Framework, an initiative for countries that were eligible for the 2020‑21 Debt Service Suspension Initiative, which was designed to coordinate the approach to debt relief among official and private creditors. Talks for Ethiopia, Ghana and Zambia are ongoing, and Malawi is pursuing a restructure outside the Framework. 

In the case of Zambia and Ghana, this incentive mechanism has not been entirely effective. Both are commodity exporting countries and high export prices mean debt carrying capacity could easily improve in the future. Creditors are wanting to build this contingency into their deals with these sovereigns which has caused delays.

Zambia has been in limbo the longest, and the country’s experience has been a cautionary tale. The government defaulted on its external debt in 2020, and EIU forecasts it will secure a final deal under the Common Framework only in the latter half of 2024. However, urgency has only really picked up for Zambia in the last couple of weeks due to its drought, endangering potential for value recovery clauses to kick in for its creditors.

“There are seven countries that would qualify for a treatment under the Common Framework that we judge to be at a high risk of distress. As forecast by EIU, Kenya has been excluded, as the sovereign was able to issue a Eurobond in early 2024 to cover most of a US$2bn bullet repayment falling due in June, albeit with a sizable risk premium. This has lessened the risk of external default in a large African market with a highly fragmented credit pool. For all the countries included, external debt is concentrated in official loans. In several cases, the outcome of a restructure could in principle be decided by a single, official creditor committee of bilateral lenders.”

Benedict Craven, Principal Economist, MEA, EIU

Other African sovereigns face a different set of difficulties that lie in the large share of debt that would be off limits, in the event of a restructure. Almost one‑half of aggregate debt owed by low‑income, high‑risk African countries is multilateral (of which three‑quarters is concessional) and therefore largely non‑negotiable. Ring‑fencing such a large share of debt creates a risk that other creditors, who would have to absorb steeper losses than otherwise in order to restore debt sustainability, would resist participation in providing debt relief. 

Egypt and Tunisia are two middle-income African countries at high risk of debt distress. In Egypt, the risk of an external default has diminished alongside an augmented IMF programme that followed currency reform in March and a giant foreign direct investment deal with the UAE. Although Egypt has proven numerous times that it can count on international bail‑outs when absolutely needed, the prospect of a domestic debt restructuring remains. 

Tunisia is at high risk of an external debt default and does not have the financial lifelines that Egypt has been able to secure. A restructure in Tunisia would be the most challenging of any sovereign at high risk of distress. The authoritarian president, Mr Saïed, rejected a US$1.9bn IMF programme back in 2023 and is unwilling to resume discussions with the Fund, including for annual article IV reviews, while he focuses on securing re‑election this year.

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: African sovereigns at high risk of debt distress appeared first on Economist Intelligence Unit.

In the recent opening of the annual legislative session, President Xi Jinping discussed unleashing “new productive forces”, a term coined by the president last September and has since become an umbrella term for productivity enhancements in China.

The ongoing US-China rivalry has meant China has become preoccupied with self-sufficiency in advanced technologies and supply chain security by doubling down on its industrial policy. China has made strides in sectors like EVs and shipbuilding but lags in the AI and chip sectors, widening its competitive gap with the US. As a result, Chinese leaders are growing anxious about potentially losing out and have listed productivity growth in sectors such as AI, hydrogen power and innovative medicine at the top of their agenda. 

As China moves forward with its new policy initiatives, security considerations over sensitive data will be at the forefront, meaning both Chinese officials and foreign enterprises will tread carefully when it comes to investment opportunities as compliance comes first. 

“EIU expects a set of incremental economic reforms will be rolled out over the next five years, rather than any radical changes. Firstly within public finance, as fiscal sustainability has become a matter of urgency, due to the unveiling of debt distress within local governments. Secondly, the country will consider economically beneficial schemes to tackle its challenge of an ageing population. Thirdly, we expect a wide range of incremental liberalisations to revive confidence and create business opportunities.”

Tianchen Xu, Senior economist, EIU

Another area for China’s policymakers to consider is the US elections being held later this year. While EIU’s core forecast is that Biden will win, if Trump is elected, it is likely he will revive tariff threats as his signature “art of the deal”. For example, by pressuring China for a new trade agreement. While this would create further operational challenges, the door is not completely closed for business and investors can seek to benefit from growing sectors in China such as healthcare and tourism. 

EIU forecasts conservative growth for China in 2024 at 4.7% as the base effect was high in 2023 due to strong post-recovery in household consumption and this will likely weaken this year. Additionally, the housing sector is experiencing a protracted correction as many large developers are close to insolvent and the government is not enforcing bold bailouts. The economy will rely heavily on public investment for growth this year. 

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: China’s economy appeared first on Economist Intelligence Unit.

As efforts by both sides to take control of large swathes of territory have given way to a stalemate, the one trigger that could unlock the situation is an important upgrade or downgrade in military equipment for either side. 

As war fatigue increases, shortages of manpower and weapons are worsening in Ukraine. International military support is not as solid as it was and aid packages are at risk of dwindling, preventing a leap in capabilities that could generate a meaningful improvement on the battlefield. On the other side, the Russian economy is increasingly geared towards the war but resources are also constrained. 

EIU expects Ukraine’s military approach to shift from an offensive to a defensive strategy this year. Ukraine will likely ramp up its long-range strike campaign inside Russia as it has been doing on Russian oil and gas infrastructure, in cities located hundreds of kilometres from the frontline. This will push Russia to spread out its anti-air defence and could further disrupt the Russian economy by hitting one of its key economic sectors, oil and gas

Adeline Van Houtte, Senior analyst, EIU

While international support for Ukraine is at risk, the US election is the big wildcard this year as aid could be drastically cut if Trump wins the election in November. This could force Ukraine to the negotiating table, with an outcome imposed on Ukraine on Russia’s terms. 

If the war continues in the longer term, EIU expects Russia’s domestic political constraints to worsen, given growing resistance to mobilisation, and rising inflation, which will increasingly spark social discontent. For Ukraine, joining the EU or NATO will be challenging, not least due to the difficulty of extending security guarantees. Moreover, given the scale of its financing needs, Ukraine faces a long road to recovery and reconstruction. 

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: the war in Ukraine appeared first on Economist Intelligence Unit.

EIU forecasts that global EV sales will grow by 29% to around 16.5m units, accounting for more than a quarter of the global automotive market in 2024. The market share of EVs is only set to increase as the 2035 target, set by several governments for phasing out fossil-fuel vehicles, draws closer. 

However, there are several obstacles that the market faces. China’s dominance of the sector has fuelled geopolitical tensions and subsequently increased trade barriers; supply chain disruptions in the Red Sea have adversely affected automakers, halting production. Also, the lack of EV charging infrastructure, and reliable power supplies in some countries, is deterring potential buyers. 

“China accounts for around 60% of global EV sales and 70% of EV production and controls a large percentage of production of batteries and their components. Major automotive exporters such as the US, EU and Japan need to maintain their EV sales to meet their emissions goals but are increasingly more concerned about Chinese competition. As a result, they have been undertaking several steps to mitigate China’s dominance.”

Nishita Aggarwal, Automotive analyst, EIU

Such steps include barring manufacturers from some countries (including China) from benefiting from sales and investment incentives in the US, as well as the EU’s investigation into Chinese subsidies.  In the short term, this will cause higher costs and more inefficiency as EV makers scramble to source parts from alternative markets. However, in the longer term, a bifurcation is expected to emerge between China and US-EU supply chains. 

Lastly, new battery types for EVs are being developed in the hope of increasing driving range, reducing charging time, cutting costs and improving safety. By improving EV technology, another goal is to divert supply chains away from China. EIU expects that there will be heavier investment in battery manufacturing, lithium processing and new battery types in the US, Asia and the EU over the next few years.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: demand trends and supply chain risks for electric vehicles appeared first on Economist Intelligence Unit.

There will be a number of notable elections across the region in 2024 with voters going to the polls in Sint Maarten, El Salvador, the Dominican Republic, Panama, Mexico, Uruguay and Venezuela. EIU expects there will be a pause in the anti-incumbency wave and that policy uncertainty will ease as new governments settle into office. However, democratic backsliding and social unrest will remain risks in countries such as El Salvador and Venezuela. 

An upside risk for economic activity in the region next year is nearshoring. Rising geopolitical risks are driving global supply‑chain shifts; although these shifts are still in their fairly early stages, there are indications that Latin America has already begun to take advantage. Mexico will be the biggest beneficiary of this trend while other countries such as Panama and Costa Rica will also profit from efforts to develop a regional semiconductor supply chain. 

“Latin America has huge lithium reserves, and investments in that sector will continue in 2024, notably in Argentina, which currently has more light‑touch environmental and local‑content regulation than its neighbours in the “lithium triangle”, Bolivia and Chile. However, governments will have to balance this encouragement of foreign investment in the lithium sector with demands by voters for environmental protection.”

Michelle Campbell, Senior analyst, LATAM, EIU

Climate-related issues will also be in the forefront in 2024. The impact of El Niño will vary across the region, with positive and negative economic consequences for different parts of Latin America. For now, however, we do not expect the phenomenon to be severe enough to reverse the current disinflationary trend and we therefore expect monetary easing to continue in 2024. Additionally, deforestation will continue to be an important issue but the EIU expects slow progress on this front despite positive discussion around protecting the Amazon rainforest.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: what to watch in Latin America appeared first on Economist Intelligence Unit.

Since the Hamas attack on Israel on October 7th, Israel has made significant inroads into degrading Hamas’s capabilities but could extend its Gaza campaign in Palestine southwards to further weaken the group. Israel intends to resume its military operations, and the war in Israel is far from resolution in the near term. However, we expect the issue of remaining hostages coupled with growing international pressure on Israel over the impact of the war on civilians to constrain Israel’s ability to meet its stated goal of destroying Hamas.

“The destruction of Hamas leaves the question of what will come next. EIU expects the Gulf economies, including Saudi Arabia, the UAE and Qatar, will continue to play an economic role in the reconstruction of Gaza but will also look to guide whatever political settlement comes next.”

keren uziyel, senior analyst, MEA, EIU

However, the Israel-Hamas war coupled with the recent Israeli air strike on the Beit Yahoun area in southern Lebanon, which killed five members of Hizbullah, an Iranian-backed Lebanese Shia group, could lead to further escalation. Israel is reluctant to place strain on its resources by fighting on two fronts, while Hizbullah risks damaging its domestic status as well as depleting its capabilities, if a full‑scale war breaks out. However, the potential for miscalculation, such as hitting a sensitive target by mistake, is high and could lead to uncontrolled either localised or regional escalation of the Israel war. International efforts to ease the risk of a wider conflagration will intensify.

The analysis and forecasts on the Israel-Hamas war featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: predictions on the next phase of the Israel-Hamas war appeared first on Economist Intelligence Unit.

China has always been one of the most attractive international investment destinations, however things took a turn for the worst in 2022, owing to three main factors: the covid-19 pandemic, China’s internal economic factors and external geopolitical factors. 

Although the pandemic is largely behind us, China moved away from lockdowns and other strict control measures much later than other major economies, and investment will take a while to recover. 

Moreover, China’s underwhelming economic recovery after the pandemic has led to further economic uncertainty. EIU estimates China’s economy will only grow by 5.2% this year and while consumption has been strong this year, weak demand for manufactured goods both within and outside of China points to weaker FDI interests for the time being. 

The other driving factor of foreign direct investment (FDI) flows in recent years has been the reorganisation of global supply chains. While China continues to be a major destination for FDI, geopolitical tensions and growth in other emerging markets such as India and Mexico, are diversifying supply chains. 

“After a fairly weak period of ODI (outward direct investment) from China, flows are now on the rise. EIU forecasts China will regain its position as the second-largest source of ODI by 2024 and this is set to grow further over the coming decade. This is not a particularly surprising development: as a country’s income rises and the domestic market matures, its companies tend to go abroad and look for new opportunities.“

Chim lee, analyst, china, EIU

EIU’s free report, China Going Global Investment Index 2023, provides further insights into China’s investment trends and is available to download here.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global Outlook: capital flows in and out of China  appeared first on Economist Intelligence Unit.

EIU expects demand for critical minerals will only grow in the coming years due to rising appetite from consumers and businesses. In particular, the rapid development of the electric vehicle (or EV) market, which we expect to more than double between 2022 and 2027, will further fuel demand.

“China holds a dominant position in global critical mineral production as the largest producer for 30 of the 50 critical minerals that the US government has designated as essential to the US economy. In July China used its dominance in critical mineral production to respond to US restrictions on the use of cloud computing services. The Chinese government imposed export restrictions on gallium and germanium, which are used in both the semiconductor and renewable energy industries. EIU expects these restrictions to backfire, motivating Western economies to reduce their reliance on China and resulting in a decline in China’s share of global critical mineral processing.“

Cody Feldman, senior analyst, global forecasting, EIU

Major economies are seeking to diversify away from China. Of particular note, Australia and Canada are two of the best placed countries to play a major role in the global supply of critical minerals. Critical mineral exploration spending rose 40% year on year for both countries in 2022, compared with 20% globally.

Emerging markets are also seeking to move up the value chain and diversify their exports of raw critical minerals away from China. Some have recently imposed bans on exports of unprocessed minerals to encourage higher value-added domestic processing. 

Overall, diversification will hinge on countries’ ability to leverage global markets and encourage foreign investment in mining and processing in the long term.  

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

The post Global Outlook: is critical mineral diversification possible? appeared first on Economist Intelligence Unit.

The next elections, to be held in November 2024, will be a top focus area for US politics in the coming months. It is too early to forecast the final results, but a number of factors are already emerging that will shape the run up to the elections and their outcomes. These include the trajectory of the US economy and the success (or failure) of the Democratic and Republican Parties to each stay unified.

Domestic political and policy risks will be elevated in the run-up to the elections. Democrats and Republicans each control a house in Congress with thin majorities. Policy negotiations ahead of the high-stakes 2024 races will be fraught, even over essential spending bills, raising the risk of government shutdowns.

“Congressional gridlock will mean that the current president, Joe Biden, who is a Democrat and seeking re-election, will have to rely on executive action to implement his remaining policy agenda. However, any changes made in that way would be vulnerable to court challenges or being overturned by a future Republican administration. That highlights the sharp swings that we could see in US policymaking over the next few years, depending on how the 2024 elections go.“

ANDREW VITERITTI, COMMERCE AND REGULATION LEAD & US analyst, EIU

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Global outlook: US 2024 elections appeared first on Economist Intelligence Unit.