This week’s great mystery is the so-called “X-date”: the day on which the United States simply runs out of money. While we do not know the exact day on which this will happen, one thing we do know is it is soon. Negotiations are apace between Republicans and Democrats to increase the country’s debt ceiling and, in doing so, stave off a potential default. While we expect a deal to be reached, it will likely come at the very last minute.

The United States is not the only country where public finances are proving to be a headache. Around the world, countries big and small which engaged in fiscal largesse during the pandemic to fight COVID-19 and stimulate their economies are now faced with gaping holes in their public finances. Rising interest rates and depreciating currencies have only exacerbated the problem. 

In Africa, several countries are already coming under severe debt distress. In Latin America, governments are seeking additional sources of revenue to deal with this issue. Even the richer economies have been forced to engage in fiscal consolidation.

The implications of this are serious: the next few years will likely see governments around the world tightening their purse strings and raising taxes on consumers and businesses. In turn, this will affect investment decisions, industrial policy, spending patterns, and monetary policy. For now, though, let’s just hope we don’t reach the “X-date”.

Antoine Bradley

Analyst, Global Economics

Your 2024 planning should start with a strong point of view on inflation and interest rates. We expect to see  interest rate cuts by major central banks  like the Fed, ECB, and Bank of England next year – but only to an extent. A return to ultra-low interest rates is not in the cards, in the short and even in the medium term. 

This is putting pressure on central banks around the world, as we highlight this week for  Brazil  and  West Africa . The common takeaway is that even as emerging-market central banks may want to loosen credit conditions, high interest rates in the US and Europe will provide a constraint or could cause significant pressure on currencies. It’s a dilemma central banks around the world will face next year, exacerbated by pressure on public budgets and rising cost of servicing government debt. 

Will this translate into higher taxes, lower spending, and greater price sensitivity for public sector buyers? Likely – and it’s something companies across all sectors should monitor closely as they think about operating conditions their global businesses will face in 2024.

Martina Bozadzhieva

Chief Research Officer

In the beginning of 2023, we asked our clients about their biggest uncertainties headed into the year. The majority answered demand and pricing. 

Five months later, the mystery of price sensitivity continues to linger. On one hand, markets like the US are seeing relatively  resilient consumption . Even as companies continue to raise prices, volume drops are relatively small, particularly for  services and non-durables . Not all markets are so lucky – in some we’re seeing the first serious signs of price sensitivity – from  Brazil  to  Sub-Saharan Africa  food prices in particular are weighing on lower-income consumers. This continues to be a highly politicized issue, driving, in some cases, policy action to contain prices for sensitive basic goods, as seen in some recent examples like  Hungary  and  Mexico . 

And then there is the case of  China  – which continues to experience completely different macro dynamics to the rest of the world. Our clients report produce price deflation, inflation remains very low, and the questions are about whether to discount, not how much to raise prices. 

Will we see a clear answer to the price sensitivity dilemma facing companies? Perhaps, but it’s clear that dynamics will continue to vary significantly between products, segments, and geographies, and one-size-fits-all answers are going to be exceptionally hard to implement. 

Martina Bozadzhieva

Chief Research Officer

This week, all eyes are on two of the world’s most important central banks, the US Federal Reserve and the European Central Bank (ECB), as they reach a potentially critical juncture in their respective monetary tightening cycles. In the US, subdued first-quarter growth, supported by consumer spending but weighed down by rate-sensitive sectors, such as housing, has encouraged the Fed that higher rates are having an impact, and that a pause in tightening could now be appropriate. Meanwhile, slowing inflation in Europe, despite a complex energy situation, means a pause is also likely on the horizon for the ECB.

Yet, as the world’s central banks reach the top of the interest-rate-hike summit, they are finding that visibility is limited. Will higher rates in the US stoke more financial instability and even trickier access to credit? Will tight financial conditions be enough to counter sticky sources of inflation in Europe? And how much of a slowdown in global economic activity are we likely to see? As multinationals begin planning for 2024, seeing through this fog is becoming crucial, and a lot of views about next year—from pricing to inflation, growth, and demand destruction risks—all hinge on how interest rates evolve in the next 12–18 months. 

Martina Bozadzhieva

Chief Research Officer