1.2 THE GLOBAL MACROECONOMIC SCENARIO AND THE REFERENCE MARKET

1.2.1 MACROECONOMIC LANDSCAPE

The year that just ended was a turbulent one. After the pandemic there was a belief that we were on the road to recovery, but the geopolitical crisis and the resulting economic consequences further complicated the international landscape. In a world where the economic crisis related to the Covid-19 pandemic continues still (especially in China), the repercussions of the war between Russia and Ukraine (first and foremost rising energy and commodity prices) and the related uncertainty have further impacted the global economy. The table below shows the forecast published by the Organization for Economic Co-operation and Development (OECD)1 in its latest Market Outlook of November 2022.

In this particular economic environment, the OECD estimates that the growth rate of the world Gross Domestic Product (GDP) for 2022 will decrease by 2.8 p.p., compared to the 5.9% growth recorded in 2021.

One of the main factors in the global macroeconomic landscape is the rate of price growth, which has not been so high in advanced countries in decades. The average inflation in OECD countries expected in 2022 is 9.4%, nearly six times the average of 1.6% for the 2013-2019 period. Inflation weighs on the economic outlook because it corresponds to higher production costs for businesses and lower real income for households, and because it forces central banks to tighten monetary policies, resulting in slower economic activity in order to pursue their statutory monetary policy objectives. The global economy faces 2023 in an environment in which growth has lost momentum, high inflation is proving persistent, confidence is weakened, and uncertainty high.

Based on these assumptions, world GDP growth for 2023 is projected by the OECD to be 2.2%, slowing from the 3.1% estimated for the year just ended.

Annual inflation in OECD economies is expected to decline, from 9.4% in 2022 to 6.5% in 2023. However, consumer price inflation in many economies will remain higher for longer than previously expected despite a broader and faster tightening of monetary policy in much of the world, and the gradual loosening of some supply chain bottlenecks. This partly reflects the war in Ukraine, especially in Europe, where the implications of the sharp increase in the price of imported natural gas in 2022 will continue to be felt in 2023. However, with official interest rates generally rising in 2023 and energy price inflation slowing, inflation is expected to decline.

In contrast, price pressures are expected to ease significantly in 2023 in the United States, Canada, Australia and Korea and remain moderate in Japan. However, the economic outlook for 2023 will be different for individual major economies.

North America

In the United States, real wages have fallen and tightening monetary policy has pushed up interest rates on all maturities, thus weakening investment, especially in the housing market. Rising interest rates have also led to a strengthening of the dollar, braking exports. GDP growth is expected to slow from 1.8% in 2022 to 0.5% in 2023. Slower growth will ease the strain on labor markets by weakening inflationary pressures from demand, and the easing of supply chain bottlenecks will allow inflationary pressures to gradually decline. Core inflation is expected to return close to the Federal Reserve's 2% target in late 2024, allowing for an easing of monetary policy.

The Canadian economy is subject to many of the same forces and is expected to see growth and inflation curves similar to those of the United States.

Europe

Growth in Europe slowed sharply in late 2022 due to the war in Ukraine and weak external demand, with production expected to decline in several countries over the winter. Restrained by high energy and food prices, low household and business confidence, continued supply bottlenecks and the initial impact of tighter monetary policy, annual growth in the Eurozone in 2023 is expected to stand at 0.5%, after having reached 3.3% in 2022. However, the implementation of Next Generation EU plans is expected to sustain investment in the coming years. Modest demand growth will help moderate inflation, but this effect will be offset by tensions in labor markets and the prospect that surging wholesale energy prices will continue to be more expensive than in the past, thus keeping inflation higher than in recent years.

Asia

In China, waves of lockdowns put in place due to the implementation of the zero Covid policy enforced by the Beijing government disrupted economic activity in 2022. With weaker real estate investment remaining a significant obstacle to recovery, growth in 2023 will be supported by infrastructure investment and other economic measures put in place by the government to moderate the correction in real estate. After the 3.3% in 2022, GDP growth is expected to rise to 4.6% in 2023. However, China will still be far from the 2013-2019 average growth rates of 6.8%. Consumer price inflation is expected to remain moderate, helped by the government's energy and food price management policies.

Growth in Japan is expected to remain above potential, but slowing gradually. Higher energy prices have hampered real household income growth and dented business confidence and investment, and a loss of economic momentum in major trading partners is dampening export growth. GDP growth is expected to be 1.8% in 2023 after recording 1.6% in 2022.

In India, growth is expected to fall from 6.6% in the current fiscal year to 5.7% in 2023 before rebounding to 6.9% in fiscal 2024, broadly in line with prepandemic trends.

Brazil And Emerging Countries

Brazil's GDP is expected to grow 2.8% in 2022 and 1.2% in 2023. Household consumption, private investment and exports will remain the main drivers of growth, although export growth is expected to slow in 2023. Inflation is expected to decline as the effects of rising energy and food prices fade. Expectations for other major emerging market economies, which are more resilient to global headwinds, are relatively positive next year and will experience only modest and short-lived peaks overshooting inflation targets. Finally, with regard to labor market conditions, these remain generally tense. Wage increases have not kept pace with price inflation, weakening real incomes despite actions taken by governments to cushion the impact of rising food and energy prices on households and businesses that have seen their purchasing power significantly eroded. OECD expects the unemployment rate to rise to about 5.5%, about 0.5 percentage points above the low recorded in mid-2022.

1.2.2 MAJOR RISKS IN 2023 RISING ENERGY PRICES

European economies continue to face significant challenges due to ongoing and planned embargoes of Russian seaborne coal and oil imports and the diminishing supply of gas from Russia to the European market. A key risk related to the projections is that the associated rise in energy prices will prove much more disruptive and persistent than assumed

Tightening Of Monetary Policy

There are growing risks that rapidly rising interest rates, tighter global financial conditions and significant asset repricing could expose longstanding financial vulnerabilities in advanced and emerging economies. Rising private sector debt service burdens and lower bond market liquidity are key risks in advanced economies.

Financial Vulnerabilities In Emerging Market Economies

Tighter financing conditions, rising debt, the sharp appreciation of the US dollar and slowing export market growth are exacerbating vulnerabilities in emerging market economies. Risk premiums have increased, capital outflows have accelerated, and international reserves have declined in many countries. In China, the resurgence of Covid-19 outbreaks or the contagion of financial fragilities in the heavily indebted real estate sector spreading to the rest of the economy could result in a sharperthan-expected slowdown in growth. Several developing and emerging market economies also face food security risks due to high food, energy and fertilizer prices and supply shortages.

1.2.3 TARGET MARKET AGRICULTURAL SECTOR

The overall business climate index for the agricultural machinery industry in Europe (CEMA's

December business climate index) closed 2022 at +30 (on a scale of -100 to +100), showing a significant upward trend after sharp declines in the first part of 2022, particularly adversely affected by the start of the Russia-Ukraine conflict.