Energy crisis & inflation: Jean-Christophe Caffet unpicks the major macroeconomic challenges for MEB members

At the Novotel Monte-Carlo on Tuesday 14 March, Chief Economist at Coface, Jean-Christophe Caffet, invited by MEB and its partners Gramaglia and Banque Populaire Méditerranée, delivered a fascinating analysis of the current situation and his forecasts for the coming months.

“We’ve escaped the worst, but the best is not happening anytime soon!” It was with this statement, not totally optimistic but not catastrophic either, that the economist began his talk to the more than 80 business leaders and officials present. It should be said that last year, Jean-Christophe Caffet spoke at this Country Risk conference on 24 February, the day Russia invaded Ukraine, a complex exercise that he delivered with aplomb. In 2023, the situation has changed but remains uncertain.

Formerly at TotalEnergies, Jean-Christophe Caffet is particularly well-versed to talk about the energy crisis. Although prices have returned to pre-war levels, thanks mainly to a mild winter and less consumption, China’s economic rebound after its disastrous anti-Covid policy and uncertainty over gas supplies could change that. Another concern is lack of investment by industry players whatever the choices made on the future energy mix in the years to come. “As it stands, according to the International Energy Agency, the investments made only cover half of future needs required by 2030,” he says.

Regards other major indicators like agriculture and industry, price trends have started to fall again but remain at high levels, on the other hand supply chains have returned to pre-war levels.

As for the much-discussed issue of inflation, it has dropped slightly but remains very worrying while GDP growth forecasts are generally weak which could lead to stagflation. The major producers of raw materials like Africa, Brazil or the Middle East are doing well, and so are to a lesser extent countries like India and Japan. Actions by central banks to contain inflation this last year is starting to impact with a drop in consumption and investment. Meanwhile, the number of bankruptcies is accelerating with a transformation in policies from “whatever it costs to support the economy” to “whatever it costs to curb inflation”.

The economist proposed three scenarios for the coming months: the first, considered unlikely, foresees a soft landing with inflation under control and positive growth; the second, favoured by Coface, anticipates continued stagflation; and the third, more pessimistic but with a 30% chance of occurring according to Coface, envisages a recession caused by excessive action by central banks to counter inflation which would seriously harm global growth.

Finally, regards the famous Coface Country Risks, Risks by Sector and Political and Social Risks ratings, they indicate a higher overall risk in nearly all regions. However, Jean-Christophe Caffet makes clear that “while overall trends are emerging, the current situation is very different from one country to another, so you need to look in detail at each destination where investment is planned”.