Executive Summary
Heavy political agenda to test global economic resilience once more. Global growth bottomed out in H1, but the global manufacturing sector is still in excess supply, and demand remains sluggish especially in the Eurozone. We expect global GDP growth at +2.8% in 2024 and 2025, with growth slowing to +1.7% in the US and reaching +1.4% in 2025 in the Eurozone. China will continue to manage its growth slowdown (+4.3% in 2025).
Corporate earnings towards a recovery? The latest earnings season has delivered mixed results: global revenues grew by +3.5% y/y but revenues stalled for European corporates (-0.7% y/y) while US and Asia-Pacific firms both reported growth at +4.5% y/y. Nevertheless, 58% of global corporates, including 59% of European ones, beat expectations. From a profitability perspective, global earnings grew by +14.7% y/y. US firms reported +10% y/y in earnings growth with 69% beating expectations while 53% of European ones also beat expectations despite reporting -2.5% y/y growth. A few sectors mostly related to technology are outperforming, while others struggle. In the US, S&P 500 firms showed moderate growth, but concerns about future earnings are still lingering. In Europe, cyclical sectors and the luxury industry – a long-time outperformer – are slowing. Banks are holding up well despite heightened economic uncertainties. Looking forward, economic resilience and easing monetary policy could support further growth and the earnings recovery.
Looking closer into sectors, we identify 3 main clusters: (i) sectors facing weaker demand and lower pricing power, (ii) sectors facing supply chain and geopolitical challenges and (iii) industries with stable or improving outlook. In the first cluster, we have sectors like pulp & paper, chemicals, agrifood, retail, textiles and household equipment where limited growth and pressured margins dominate the outlook. Supply chain and geopolitical issues are still significantly weighing on industries such as transportation, energy, and transport equipment, where demand remains resilient but operational and geopolitical hurdles persist. Stable or improving sectors, including pharmaceuticals, automotive, computers and IT services, benefit from technological advances such as AI which is boosting corporate IT spend and steady demand through structural trends (e.g. demographics, green transition etc.). However, some of these sectors face specific challenges like regulatory risks.
Given this context, the majority of our sector ratings fall into the ‘Medium’ or ‘Sensitive’ risk categories. 87% of all ratings across regions fall into these two ratings. Like last year, there is notable variation in risk levels between regions, with Asia generally being safer and Latin America being more at risk. In terms of industries, pharmaceuticals and software & IT services tend to have stronger ratings, while construction, textiles, and metals are considered riskier. Compared to the pre-Covid period, most sectors are still below 2019 despite the recovery in ratings. Changes in ratings over the last four quarters are pointing to several sectors standing out. Household equipment, chemicals, construction and textiles are standing out with an overall negative balance. On the contrary, the recovery in ratings proved to be substantial in the auto sector, in transportation and in machinery equipment. But this is not a surprise since those sectors were the ones most downgraded after the onset of the pandemic.