27/10/2023

Source: EIU

The Economist Intelligence Unit publishes an annual report presenting the global outlook for six sectors: automotive, consumer goods & retail, energy, financial services, healthcare & pharmaceuticals and telecommunications. These analyses describe the growth prospects, the risks and the trends to be monitored in these six major sectors. They aim to provide companies with an overview of global trends, opportunities and threats that will affect their sector in the coming year.

1- General

Based on the observation that recent years have been turbulent for most companies, due to the pandemic, soaring raw material prices, high interest rates and political disturbances, the report questions the stability of conditions during the year 2024.

Geopolitical tensions and global warming will lead to new challenges for companies in 2024. Artificial intelligence, for its part, will bring new opportunities.

• Climate change will begin to have a noticeable impact on countries and companies. The sectors directly linked to the mitigation of this phenomenon, such as renewable energies and electric cars, and those that will have to adapt, such as air conditioning and healthcare, will see their demand grow, but insurers and governments will find it difficult to integrate the increasing risks associated with it.

• New regulations in the EU and the US mean that companies will have to closely monitor their supply chains to improve environmental, social and governance (ESG) reporting. However, skepticism in this regard will harden in the United States as the presidential elections approach in November.

• Business concerns about taxation will increase as the OECD introduces its global minimum tax rate. Governments will try to reduce budget deficits and national debt levels that have widened during the covid-19 pandemic.

• Geopolitical tensions between China, Russia and Western allies, as well as higher risks in the Middle East, will complicate the reactions of governments and companies to all this. Investments impacting value chains, in particular for technology and the energy transition, will adapt to minimize political risk.

• The increasing use of generative artificial intelligence will reshape companies and jobs. Despite some notable disruptions in sectors such as marketing,

the arts, business services and education, most companies will find ways to use AI to increase their productivity.

• Companies have experienced ups and downs in recent years as the pandemic, soaring commodity prices, high interest rates and political disruptions have generated good profits for many companies and bankruptcies for others.

• Most of these factors will persist until 2024 in a more discreet form, but remain accompanied by the acceleration component of climate change and El Niño (abnormally high water temperatures). The year 2024, predicted to be the hottest on record, will see minds focus on efforts to reduce greenhouse emissions and on restarting investments in renewable energies and electric vehicles.

• However, the various economic actors will not be able to achieve the ambitious objectives they have set for themselves on minimizing climate risks and the global use of fossil fuels will, paradoxically, have to increase.

In addition, the costs associated with managing climate change will become increasingly onerous, and not only for the sectors directly affected (such as airlines, healthcare, insurance and food production), but also for many companies and governments.

• We should expect an increase in reluctance within the EU, where emissions targets will require high costs for companies and will put a strain on their competitiveness. On the US side, attitudes will become even more polarized in the run-up to the November elections and stricter regulations on ESG reporting will add to the pressures of the situation.

• In 2024, OECD countries will embark on the debate aimed at encouraging the adoption of a global corporate tax rate of 15% as agreed in 2021. Although the EU and other countries will comply with it (the United States already has a 15% rate), some governments will continue to reduce their taxes to attract investment.

• Digital tax projects will be suspended, with the exception of those in Canada. For their part, emerging and developing markets such as India will also find it difficult to reduce their deficits without increasing tax levels.

2- Sectoral analysis

• Tensions will continue to affect technological investments, especially in the semiconductor, data processing and artificial intelligence (AI) sectors, with healthcare technology likely to be next on the list.

• Regulations and trade barriers will probably evolve rapidly, as companies, on an international scale, intensify their investments in AI in an attempt to benefit from recent developments in LLM models (computer language model with a large number of parameters).

• EIU experts predict disruptions in the markets related to these AI technologies as companies test tools and means to increase their productivity. However, large-scale job losses are not expected.

• As for the automotive sector, the demand for electric vehicles (EVs) will continue to be the only positive point in a very gloomy context.

It is expected that sales of electric vehicles will increase by 21% to 14.9 million units, more than five times their pre-pandemic level, while sales of passenger cars (including electric vehicles) and commercial vehicles will increase by only 3% and 1% respectively. China will account for more than half of global sales of electric vehicles and a similar share of global sales and exports of electric vehicles causing an escalation of trade tensions.

• For consumer goods and retail sales, global sales growth is forecast at around 6.7% in US dollar terms and 2% in real terms as inflation slows.

In this context, retailers will probably fare better than online sales companies, helped by bargain hunters and the continuous improvement of the tourism situation on a global scale.

• Energy consumption will accelerate in 2024, largely driven by Asian demand. Still high, fossil fuel prices will contribute to global demand reaching new records. For its part, the demand for renewable energy will increase by 11%, despite unresolved supply chain problems, still high financial costs and low auction prices.

• As for the financial services sector, banks and fixed income funds will continue to benefit from high interest rates and wider margins, but real estate investors will face more turbulence, especially in China.

Property insurers will stop covering areas subject to weather risks such as tropical storms, rainfall, floods and forest fires.

• Health spending will increase in real terms after two years of decline. Countries such as China and Egypt will work to expand access to care. However, resources will remain limited as governments try to reduce budget deficits and public debt levels while avoiding strikes in the health care sector. Pharmaceutical companies will face new regulations regarding manufacturing standards in India and EU market entry requirements.

• The technology sector will focus on investments in AI, but will have to contend with stricter regulations and increasing geopolitical tensions. Large semiconductor companies will continue to diversify in the West thanks to the large subsidies available, but (like other technology companies) they will face dilemmas regarding investments in China. Chinese technology companies will face their own dilemmas as they bypass trade restrictions in order to seek investment opportunities abroad.

3- Focus on 4 sectors

Automobiles in 2024: the transition to electric vehicles will accelerate, but Chinese domination of the sector will aggravate geopolitical tensions • The global automotive sector will be hit by slow consumer spending, high interest rates and the transition to electric vehicles. An increase in sales of passenger cars of 3%, and sales of commercial vehicles and buses of 1% is expected. • Slow progress is expected in approving legislation related to electric vehicles and greenhouse gas emissions in the run-up to the 2024 US presidential elections. • The EU Border Carbon Adjustment Mechanism, which will oblige importers of certain products to pay a carbon tax from 2026, began its transition phase in October 2023, with reporting scheduled for January 2024. The regulation will apply to materials such as steel and aluminum, which are essential for the manufacture of vehicles. Energy in 2024: Energy consumption will accelerate in 2024. Fossil fuels will continue to dominate, despite the growing demand for renewable energies • The growth of global energy consumption will accelerate to reach 1.8% in 2024, supported by strong demand in Asia despite persistently high energy prices. • Global demand for coal, gas and oil will reach record levels, which will hamper efforts to reduce emissions. High commodity prices will continue to stimulate investment in oil and gas production. • The dynamics of renewable energies will continue, with the combined consumption of solar and wind energy increasing by about 11% per year globally. Many countries will also hurry to produce more hydrogen • Hydroelectric production will remain low while climate change continues to lower water levels in many regions. Nuclear power will also be affected.

Health in 2024: Increasing spending in real terms will not allay concerns about the long-term sustainability of health systems.

After two years of decline, health spending will increase as inflation slows. However, resources will remain limited as governments try to reduce budget deficits and levels

of public debt while avoiding strikes in the health care sector.

Technologies and ICT in 2024: AI will be at the center of technological investments but will face geopolitical and regulatory challenges • Investments in AI will increase in 2024 as more companies go beyond experimentation and begin to discover real use cases. However, the main impact of technology is likely to be felt on politics, especially in the United States and other countries facing elections.

• Pharmaceutical expenses will also increase in 2024, as drug prices continue to rise sharply, despite efforts to regulate them. Drug manufacturers are facing new regulations related to manufacturing standards in India and EU market entry requirements. • Climate change will threaten human health and health systems as heatstroke and natural disasters multiply. Healthcare providers and pharmaceutical companies will come under more pressure to reduce their contribution to global emissions. • Digital health will further develop, with investments in artificial intelligence offering new opportunities. Regulators will strengthen oversight of data access and privacy, as well as AI ethics, while investors will push for more sustainable business models. • The main semiconductor companies will continue to diversify in the West, due to geopolitical concerns and the large government subsidies available. • Regulators will strive to keep up with the evolution of AI, with the EU trying to play a leading role in the development of this technology. Other areas, such as data, privacy and competition, will also be examined. • The geopolitical battle over technology between the United States and China will continue and its ramifications will affect many other countries.