Political pressures are once again testing global economic resilience. While global growth hit its lowest point in the first half of the year, the manufacturing sector remains oversupplied, with demand particularly weak in the Eurozone. Global GDP growth is projected at 2.8% for both 2024 and 2025, with the U.S. slowing to 1.7% and the Eurozone reaching just 1.4% by 2025. China’s growth will continue to decelerate, with an estimated 4.3% growth in 2025.
Corporate earnings are showing signs of recovery, though results are mixed. Global revenues increased by 3.5% year-over-year, but European companies saw a slight decline (-0.7% y/y). In contrast, companies in the U.S. and Asia-Pacific regions reported 4.5% y/y revenue growth. Despite this, 58% of global corporations, including 59% of European firms, exceeded earnings expectations. On a global scale, earnings rose by 14.7% y/y, with U.S. firms seeing a 10% y/y increase, and 69% surpassing expectations. European companies, despite a -2.5% y/y earnings drop, had 53% exceed projections. Technology-related sectors are leading the way, while others lag behind. In the U.S., S&P 500 companies experienced moderate growth, but concerns remain about future earnings. European cyclical industries, particularly the luxury sector, are slowing, though banks are proving resilient in the face of economic uncertainty. Moving forward, economic resilience and potential easing of monetary policies could drive further growth and recovery in earnings.
When examining specific sectors, three main clusters emerge: (i) sectors with weaker demand and limited pricing power, (ii) those facing supply chain and geopolitical difficulties, and (iii) industries with a stable or improving outlook. The first group includes industries such as pulp & paper, chemicals, agrifood, retail, textiles, and household equipment, which face limited growth and margin pressures. The second group—transportation, energy, and transport equipment—continues to grapple with supply chain and geopolitical challenges, although demand remains stable. The third group, which includes pharmaceuticals, automotive, and IT services, is benefiting from technological advancements such as AI, driving corporate IT spending and demand from broader trends like demographics and the green transition. However, these sectors also face challenges such as regulatory risks.
In this environment, the majority of sectors are classified as ‘Medium’ or ‘Sensitive’ risk, with 87% of ratings falling into these categories across regions. As seen last year, there are significant regional differences, with Asia being relatively safer and Latin America facing higher risks. Stronger ratings are generally found in pharmaceuticals and software & IT services, while industries like construction, textiles, and metals are considered higher risk. Compared to the pre-Covid era, most sectors are still below their 2019 levels, though some sectors have seen notable improvements. Sectors such as household equipment, chemicals, construction, and textiles continue to experience negative trends, while the automotive, transportation, and machinery equipment sectors have shown significant recovery, especially as they were among the hardest hit following the pandemic’s onset.
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