Hot, bright and soft spots

Transcription

Macroeconomic
and Country Risk Outlook
Economic
Outlook
no. 1205-1206
March-April 2014
www.eulerhermes.com
Hot, bright
and soft spots:
Who could make or break
global growth?
Economic Research
Economic Outlook no. 1205-1206 | March-April 2014 | Macroeconomic and Country Risk Outlook
Euler Hermes
Contents
3
editoRial
20
economic outlook seRies
4
oveRview
21
ouR available publications
8
countRY Risk outlook
22
subsidiaRies
10
political Hot spots: diverging fates
and negative spillovers
10
◼ ukraine: A Litmus test for Russia?
11
◼ turkey: A hiccup not an earthquake
12
economic soFt spots: time to
change the business model, again!
12
◼ brazil: Mega events, low growth, high
inflation — wrong mix
13
◼ india: Unleashing growth
14
◼ south africa: No longer top dog?
15
◼ Germany vs. France: Need to be
in sync
16
conFidence bRiGHt spots: keeping
the momentum
16
◼ united states: A difficult winter sets
the stage for a spring rebound
17
◼ china: Transformation, act two
18
◼ Gulf cooperation council: Oiling the
wheels
19
◼ southern europe and the uk: Austerity
afterlife
economic Research
euler Hermes Group
economic
Outlook
no. 1205-1206
macroeconomic
and country Risk outlook
the economic outlook is a monthly
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Research Department of Euler Hermes.
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macroeconomic Research and country
Risk: Frédéric Andres, Andrew Atkinson,
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photoengraving: Évreux Compo France
– Permit March -April 2014; issn 1 162 –
2 881 ◾ April 15, 2014
2
Euler Hermes
editoRial
Game of Thrones
ludovic subRan
Don’t worry; I have just started watching it, so there will be no spoiler in this
first quarter! Fragility in (some) emerging countries, China’s transition(s),
editorial. However, the reason why I chose to compare world economics to
growing lowflation risks in the advanced economies, along with the blatant
Game of Thrones is that today, more than ever, fiction is not far from reality.
rise of political risk are among the core determinants for growth and trade
I will even go as far to say that world leaders and economic commentators
today.
should watch more HBO and spend less time in G-something meetings.
From ego-tripping in some of the major super powers, to fast-changing
In the series, royal families on the fictitious continent of Westeros (a stand-in
business models which could strengthen or weaken the pass-through of the
for various parts of Western Europe) intrigue against and slaughter each other
recovery to the private sector, to confidence boosters – short-lived breaks in a
– there is no such thing as the European Commission or the European Central
very turbulent economy, it seems that Game of Thrones could get live
Bank in the show. Far to the South, Daenerys Targaryen is plotting to invade
inspiration for its next seasons right here, in the world of its viewers.
Westeros and reclaim the Iron Throne. The analogy with the BRICS is easy:
‘Dragons’ and ‘White Walkers’ bear a resemblance to competitiveness gains
and industrial emergence in the emerging markets. In the real world, America,
like Westeros, seems oblivious to what is happening in Essos (The East). The
recent developments in Ukraine and Russia, and the way Westeros has dealt
with them so far is the proof in the pudding.
The parable is quite simple: as the world economy continues to mend, political
risk is on the rise largely in the form of interventionism, currency wars, and
protectionism. If you add to this the emergence of regional blocks (so-called
Kingdoms in the program) eyeing each other’s commodities, currency
reserves and influence, you then have a full-fledged reality TV show.
The political hotspots, economic soft spots and confidence bright spots we
present in this report could indeed be directly extracted from the best
episodes of the show.
When we identified the ten game changers for 2014 earlier this year, we did
not expect that some of them would actually change the game as soon as the
3
Euler Hermes
oveRview
Hot, bright and soft spots:
Who could make or break global growth?
macRoeconomic ReseaRcH and countRY Risk team
World GDP set to recover (+2.9% in 2014) – albeit
downside risks prevail
Advanced economies are
picking up speed with an
expected growth of +2.0% in
2014, the fastest since 2010.
The UK (+2.4%) and eurozone
members (+1.0%) keep
improving (though the latter’s
recovery remains fragile,
especially in Southern European
countries), while the U.S. was
slightly held back by an
extremely severe winter
(+2.8%). Abenomics still
bestows steady growth in Japan
(+1.2%), though more arrows
are needed to keep the engine
While emerging economies
remain the primary
contributors to global growth
(+1.6pps), expectations have
dampened on the back of the
sharp revision of Russia’s
growth prospects (+0.7%) as
well as slowing growth
outlooks for Brazil (+2.0%),
Turkey (+3.0%) and South
Africa (+2.8%).
World imports and regional contributions
running. In total, economic
activity continues to be evenly
distributed between advanced
and emerging economies.
Has the game
changed?
In December 2013, we first introduced our Ten
Game Changers for 2014 global growth 1 . From
these, three have emerged to be pivotal: (1) disinflation in advanced economies (2) the fragility
of emerging markets and (3) old and new (geo-)
political risk in 2014, especially in emerging economies.
Disinflation in the
advanced economies
%
6
The global economic slowdown experienced
5.5%
since 2012 has put downward pressure on pric5
4.5%
4
3
North America
es in the advanced economies. Inflation fell ra-
Latin america
pidly in the United States, the United Kingdom
and most notably in the eurozone, particularly
Western Europe
2.3%
in Southern European countries. Indeed, cycli-
2.1%
Eastern Europe
cal and structural factors have put heavy pres-
2
Asia-Pacific
1
0
sure on prices. The main cyclical factors impac-
Africa and Middle East
ting are weak demand, high unemployment,
World imports
contracting credit, adjusting labor costs, overcapacity in the industrial sector, lower food and
-1
12
13e
14f
energy prices. The main structural factors to be
considered are competition (telecommunica-
15f
Sources: IHS Global Insight, Euler Hermes
1
4
See our Economic Outlook no. 1202-1203 “Top Ten Game Changers in 2014”
Euler Hermes
Change in policy rates since May 2013
Basis points
500
400
300
200
100
tion, automotive sector) and offshoring (tex-
other hand, India and Brazil belong to a second
tiles). The ECB is expected to take further action,
group of countries, those who had to use their
i.e. further small cuts in interest rates after June
respective economic toolkits in order to restrain
and additional non-conventional measures (pri-
capital outflows, prevent exchange rate depre-
vate asset purchases/ targeted liquidity for
ciation and keep inflation under control. Here,
SMEs) in Q3/Q4 after the end of the ECB Asset
the authorities’ responsiveness was pivotal. Whe-
Quality Review and Stress Tests.
reas, for example, India, Indonesia and Brazil
steadily increased their policy rates over the se-
0
Turkey
Brazil
India
Indonesia
Colombia
South Africa
Mexico
Chile
Philippines
-100
Diverging fates in the
emerging economies
cond half of 2013, thus cushioning the impact
on the real economy. Turkey’s central bank waited until January 2014 to announce a 550bps
hike of its key one-week repo rate, a step that
As emphasized late last year, the ability of emer-
will weigh negatively on Turkey’s 2014 growth
ging economies to weather the Fed quantitative
prospects. Finally, countries such as Argentina
USD/LCU, %
easing (QE) tapering largely depends on their fi-
and Venezuela, with their unorthodox macroe-
60
nancial fundamentals. The authorities need to
conomic policies, saw their problems aggravated
be responsive and flexible in creating counter-
by the Fed QE tapering. Still, the main reasons
vailing policies. Here, paths have diverged subs-
for their challenging economic situations are
tantially across countries. Those with a tradition
home-grown.
Currency depreciation at end-January
among the 'Fragile 10' countries
50
Depreciation since 21 May 2013 (first hint of Fed QE tapering)
Depreciation since 17 Dec 2013 (announcement of Fed QE tapering)
40
of sound macroeconomic policies such as Chile
30
have been able to avoid large capital outflows,
20
to keep the exchange rate broadly stable without
having to pump huge amounts of FX reserves
10
(Geo-)Political risk remains
on the map
into the market or increasing policy rates sub-
Chile
Mexico
Colombia
Philippines
India
Brazil
South Africa
Turkey
Indonesia
Argentina
0
stantially, i.e. without having to put stability above
(Geo-)Political risk has played an even more im-
growth prospects. Therefore they only had to
make limited use of their policy toolkits. On the
portant role than we originally expected. While
the conflict in Syria persists and weighs on
5
Euler Hermes
Current account
USD Bn
Real GDP growth, annual change, %
weights*
woRld Gdp GRowtH
100
2012
2.5
1,500
2013
2.3
2014f
2.9
2015f
3.2
advanced economies
62
1.4
1.2
2.0
2.4
emerging economies
38
4.4
4.1
4.3
4.6
north america
25
2.7
1.9
2.7
3.1
United States
23
2.8
1.9
2.8
3.2
Canada
3
1.7
2.0
2.6
2.7
latin america
8
2.7
2.6
2.6
3.0
Brazil
3
1.0
2.3
2.0
2.5
Western Europe
23
-0.3
0.1
1.3
1.3
United Kingdom
3
0.3
1.7
2.4
2.5
Sweden
3
1.3
1.5
2.4
2.8
17
-0.6
-0.4
1.0
1.4
Germany
5
0.9
0.5
1.7
1.9
France
4
0.0
0.3
0.7
1.2
Italy
3
-2.5
-1.8
0.4
0.9
Spain
2
-1.6
-1.2
0.6
1.2
Netherlands
1
-1.3
-0.8
0.9
1.3
Greece
0
-7.0
-3.9
-0.1
0.6
Ireland
0
0.2
-0.3
1.6
1.8
Portugal
0
-3.2
-1.4
1.0
1.3
central and eastern europe
6
2.1
1.8
1.6
2.5
Russia
3
3.4
1.3
0.7
2.0
Turkey
1
2.2
4.0
3.0
4.2
Poland
1
1.9
1.6
3.0
2.4
asia
29
4.6
4.7
4.7
4.7
China
11
7.7
7.6
7.5
7.3
Japan
8
1.4
1.5
1.2
1.1
India
3
3.2
4.4
5.3
5.8
oceania
2
3.5
2.4
2.8
3.0
Australia
2
3.6
2.4
2.8
2.8
middle east
4
3.2
2.6
3.6
4.2
Saudi Arabia
1
5.8
3.8
4.5
5.0
United Arab Emirates
1
4.4
3.5
4.0
4.0
africa
2
6.1
4.0
4.4
5.1
South Africa
1
2.5
1.8
2.8
3.5
Morocco
0
2.7
4.5
4.5
5.0
eurozone members
Russia
GIPS
1,000
GCC
500
Asia
GCC
Germany
Germany
0
USA
‘Fragile 10’
Southern
Europe
-500
00
02
04
06
4
3
2
1
0
India
Indonesia
South Africa
Turkey
Brazil
Philippines
Thailand
-1
Sources: Bloomberg, Euler Hermes
2
6
08
10
12
14
+0.7%
Forecast
GDP growth
in Russia
in 2014
neighboring countries – particularly Lebanon
and Jordan – Egypt continues its crackdown on
the Muslim brotherhood, further dividing its society. In addition, Iran’s attempt to re-establish
relations in the international stage will ensure
that politics continue to be a key risk factor in
the Middle East. Thailand remains shaken by political unrest and a deep divide between the supporters of the Thaksin regime and its opponents
led by Suthep Thaugsuban. Although the country
has weathered political turmoil without facing
serious economic consequences, the length of
the conflict and the increasing divide of the fractions weigh on growth prospects. Venezuela,
another country shaken by violent demonstrations, continues its economic downward spiral
without an apparent solution. In Turkey, econo-
5
United States
-1,500
Sources: IMF, IHS Global Insight, Euler Hermes forecasts
YTD, USD Bn
Japan and South Korea
-1,000
* Weights in global GDP at market prices, 2012
Equity inflows
Greater China
‘Fragile 10’
mics and politics intermingle unfavorably, taking
their toll on growth prospects. The country remains sensitive to investors’ mood mainly due
to a large current account deficit predominantly
financed by short-term inflows. In addition, the
Fed QE tapering occurred at a time when a corruption scandal as well as a political standoff between Prime Minister Erdogan and Fethullah Gulen, a former Erdogan ally, shook the country.
While local elections in March strengthened Erdogan’s position, the Prime Minister’s dealing
with Gulen’s supporters (which could lead to a
further divide in Turkish society) as well as presidential elections in August, need to be monitored. Last but not least, the Crimean conflict has
put politics back on Europe’s risk map. Already,
the conflict has taken its toll on Russia’s growth
prospects for 2014 with GDP growth only estimated to reach +0.7%. If, as expected, there is
no further escalation of the conflict, the economic consequences beyond Russia and Ukraine
would be limited. Yet, downside risks remain, especially if Russia were to annex the eastern part
of the Ukraine. In total, political risk will accompany economic developments in 2014.
Adjusting to the change in the
U.S. Fed policy
In order to determine which emerging economies are most vulnerable in the short-term, we
classified countries according to their fragility
towards the Fed QE tapering and their dependency on exports to China, i.e. countries that
could be hit by a slowdown of China’s GDP
growth and the transformation of its economic
model. We identified a list of 10 most vulnerable countries in the short-term, the ‘Fragile 10’
(Argentina, Indonesia, Turkey, Brazil, South
Africa, India, Chile, Colombia, the Philippines
and Mexico) that we constantly monitor 2.
For more information, please consult our Economic Insight “The Fragile 10: Turbulences but no crash” published on February 6, 2014
Foreign direct investments
USD Bn
the way ahead – who
is hot, who is bright?
While economic policies and politics are certainly major fundamentals of development, perception and confidence should not be underestimated. Global confidence continues to
improve despite negative news from China and
Ukraine. This trend was mainly driven by the
U.S. and the eurozone. Meanwhile, financial sentiment improved with a reduction in global risk
aversion and a return of confidence towards
emerging markets. In particular, EM financial in-
400
350
The
‘Fragile 10’
300
250
200
150
Russia
100
Fragile 10 1
50
GIPS 2
Germany
0
05 06 07 08 09 10 11 12 13 14f
1
Argentina, Indonesia, Turkey, Brazil, South Africa, India, China,
Colombia, Philippines and Mexico
2
Greece, Ireland, Portugal and Spain
became the Improving 4,
the Precarious 5,
and Argentina
Change in foreign reserves since May 2013
USD Bn
10
5
0
-5
-10
-15
Chile
Mexico
Colombia
India
Philippines
Brazil
South Africa
-20
Turkey
upcoming elections. Furthermore, Indonesia has
convinced with generally sound macroeconomic policies (despite corruption scandals)
though the presidential poll in July will have to
be awaited to firmly determine the way ahead.
Results are more mixed for Brazil and South
Africa. Growth remains subdued and a return
to higher growth rates would need a substantial
change in policies. A tough stance on inflation
and increased focus on investment is required.
In the case of Brazil, industry diversification and
competitiveness will be key. As to South Africa,
improved labor relations, good governance and
a return to business-friendly policies are needed.
Turkey, as mentioned, has also introduced measures to counteract capital outflows but political
hiccups have held back the success of these
measures. In summary for these five countries,
we expect the worst to be over as countervailing
measures start to gain traction, but downside
risks prevail. Argentina stands out as the only
country of the ‘Fragile 10’ for whom poor macroeconomic policies and homegrown problems will continue to weigh on the economic
outlook with little hope for improvement before
elections in 2015.
Indonesia
The quality of economic policy and authorities
responsiveness to the tapering of Fed’s QE program and rising (geo-)political risks over the last
months, revealed that some countries are in a
better shape to weather the storm than others.
As a result, we identified the ‘Improving 4’ (Chile,
Mexico, Colombia and the Philippines), the ‘Precarious 5’ (India, Indonesia, Brazil, South Africa
and Turkey) and Argentina.
The ‘Improving 4’ all managed to control net
capital flows without having to increase policy
rates. The depreciation of their exchange rates
remained manageable while their FX reserves
continued to be broadly stable. Also, the negative impact on the real economy was limited. A
track record of sound macroeconomic policies
combined with a good reputation of authorities
(Chile), pro-business reforms (Mexico), low public and external debt (Colombia) and a strong
central bank coupled with high FX reserves (the
Philippines) have helped these countries to not
lose or quickly regain market confidence. The
'Improving 4’ are thus expected to remain on
track.
As to the ‘Precarious 5’, their vulnerabilities (current account deficits, dependence on short term
inflows, inflation and still mixed business environments) were combined with a loss of confidence in emerging markets. These countries
had thus to implement measures to strengthen
their positions (with varying success). The fact
that these five countries face elections this year
contributes to increased uncertainty. India has
done particularly well as of late on the back of a
central bank determined to fight inflation, increasing business confidence and industrial production, a narrowing current account deficit and
Argentina
Euler Hermes
dices have been gaining traction since the end
of January with improving sentiments in Asia
and Latin America, which offsets weak sentiment in Eastern Europe, thus setting the stage
for a continued upwards trend.
On the back of these developments, a number
of hot spots, soft spots and bright spots have
emerged. Russia, Ukraine, and to a lesser extent
Turkey, remain hot spots due to (geo-) political
risks weighing down on the respective economies and potentially creating negative spillover
effects. Brazil, South Africa, and to a lesser extent
India, emerged as economic soft spots, all of
them having to adjust to a world where emerging markets are no longer investors’ darlings
purely by definition. However, it is not only emerging economies who will have to adjust their
business models. While France needs to rethink
its business model, Germany could be challenged by prevailing deflationary pressures in the
eurozone as well as the strong euro. On the upside, we see the U.S. and the UK as bright spots
as growth has gained traction. The goal will thus
be to keep up the momentum. Even Southern
Europe shows signs of improving economic
prospects and rise in confidence after several
years of painful adjustments and austerity. With
buoyant GDP growth, high domestic spending
and improved business environments, trade
with the GCC countries is likely to be a bright
spots in the evolving global economy. Last, but
certainly not least, we see China as a bright spot.
Despite challenges related to the change in business model, we do see positive signs of a successful transition. Finally, the country’s remarkable transformation that has already taken
place should remind us that China has been capable of overcoming enormous obstacles – why
should it not be able to continue to do so?
7
Euler Hermes
country
Risk
Outlook
1st Quarter 2014
six changes in
country risk ratings
1st Quarter 2014
macRoeconomic ReseaRcH and countRY Risk team
6
countries
with improved
ratings
the netherlands
medium term
risk:
the scale comprises 6 levels :
aa represents the lowest risk,
d the highest.
short term
risk :
the scale comprises 4 levels :
1 represents the lowest risk,
4 the highest.
8
aa2
aa1
The economic outlook improved over the past
months and growth is expected to reach +0.9%
in 2014 and +1.3% in 2015. Business
insolvencies should stabilize in 2014, albeit at a
record high level. Short-term financing risk
remains low thanks to contained fiscal deficit
and interest expenditures, a high current
account surplus and improving banking sector
health.
malta
aa2
a1
Since 2010, the country has been relatively
resilient and GDP growth should average
+2.1% in 2014-15. Financing risk remains
moderate in the next 6 to 12 months but a
number of vulnerabilities weigh on medium
term prospects (public and external debt,
weak banking sector, too high dependence
on tourism and semiconductor exports).
Euler Hermes
the philippines
c3
b2
The economy’s resilience to external
shocks, elevated GDP growth during the
past decade, the robust external position,
the substantial improvement in public
finances and the stronger business
environment are indicators for a much
improved macro environment.
algeria
c3
c2
Current account surpluses, buoyed by large oil
and gas revenues, enable FX accumulation. FX
reserves of around USD190 billion currently
provide import cover of over 30 months and
foreign debt obligations (and ratios) remain
very low. EH expects GDP growth of +4.5% and
+4% in 2014 and 2015, respectively, boosted by
government spending (including large
infrastructure projects).
Romania
c3
b2
Macroeconomic fundamentals have
continued to improve (narrowed current
account and fiscal deficits, moderate public
debt) though external debt is still elevated
(68% of GDP in 2013, on a declining trend).
EH forecasts growth of around +3% in 2014
and 2015, accompanied by falling business
insolvencies.
kenya
c3
c2
Economic diversification away from
traditional sectors is actively promoted. The
use of mobile telephony has permitted an
advance in the spread of banking and other
financial sector services. The medium and
longer term outlooks are favorable, reflecting
the country’s status as a regional hub and the
prospects provided by energy resources.
9
Euler Hermes
Impact on GDP growth
pps
Political Hot Spot: Diverging fates
manFRed stameR
Ukraine: A Litmus
test for Russia?
USD
120 bn
expected capital
outflows from Russia
in 2014
diate risks of a balance of payments
crisis and sovereign default in
Ukraine. However, the key conditions of IMF support - fiscal austerity
and a flexible exchange rate - will
weigh heavily on domestic demand. EH expects real GDP to
contract by -3% in 2014. With
consumers likely to bear the brunt
of the adjustment, reform implementation will be a key challenge.
Hence, external liquidity risk will remain high in the medium-term.
The impact on Ukraine in the escalation scenario is highly uncertain,
but a much stronger recession
would appear unavoidable.
crisis scenarios
The recent developments in
Ukraine - where the domestic political crisis has escalated into a serious conflict between Ukraine and
Russia after the latter annexed the
Crimea - have already taken a toll
on the economies of the two affected countries while the impact on
Europe has been negligible so far.
It is possible to estimate the economic effects firstly under our central scenario (no further occupation
of parts of Ukraine by Russia and
thus no full-blown sanctions on
Russia) and secondly in an alternative escalation scenario (Russia intervenes in east and southeast
Ukraine and the West imposes
substantial economic sanctions) —
20% likelihood at this stage.
impact on Russia
In the central scenario, EH has revised its 2014 GDP growth forecast
for Russia to +0.7% (from +2.6%
previously) as a result of the ongoing political conflict and its economic impact, especially heavy net
capital outflows (forecast at
USD120bn in 2014, after approx.
USD70bn in Q1), strong currency
depreciation (forecast at 15% in
2014) and monetary tightening
(+150bps interest rate hike in
March). Consumer spending and
investment will be most affected
in this scenario. In the escalation
scenario, the potential impact on
the Russian economy would be
very severe. Economic sanctions by
the West would reduce trade between Russia and Europe by an estimated 50%. Net capital outflows
could amount to USD200bn and
impact on ukraine
In the central scenario, the prospect
of a large IMF-led international funding
programme
(approx.
USD27bn) has reduced the imme-
Net capital inflows/outflows by private sector
USD bn
60
30
0
-30
-60
-90
-120
-150
04
05
06
07
08
09
10
11
12
13
14
Sources: Central Bank of Russia, Euler Hermes
10
1
Exports to
Russia
Investment flows from
Russia
baseline escalation baseline escalation
scenario scenario scenario scenario
Germany
-0.1
-0.6
-0.0
-0.0
France
-0.0
-0.2
-0.0
-0.0
Italy
-0.0
-0.3
-0.0
-0.0
Spain
-0.0
-0.1
-0.0
-0.0
Belgium
-0.1
-0.6
-0.0
-0.0
Netherlands
-0.1
-0.6
-0.1
-0.3
Portugal
-0.0
-0.1
-0.0
-0.0
Austria
-0.1
-0.6
-0.0
-0.2
total eurozone
-0.1
-0.4
-0.0
-0.1
-0.1
Czech Republic
-0.1
-1.5
-0.0
Hungary
-0.1
-1.4
0.0
0.1
Poland
-0.1
-0.9
-0.0
-0.1
Bulgaria
-0.1
-0.7
-0.0
-0.0
Romania
-0.1
-0.5
-0.0
-0.0
Denmark
-0.0
-0.3
-0.0
-0.0
United Kingdom
-0.0
-0.1
-0.0
-0.0
Source: Euler Hermes
the RUB would depreciate by at
least 30% in 2014. The adverse effects on consumer spending and
investment would be much larger
than in the central scenario and exports (-20%) and imports (-15%)
would shrink sharply. Overall, a recession in 2014 would be unavoidable, with real GDP likely to
contract by around -2.5%.
impact on europe
Potential spillover channels of the
Russia-Ukraine crisis include: (1)
trade flows, (2) investment flows,
(3) energy prices, (4) firms’ payment behaviour and (5) banks’ exposure. In the central scenario, the
impact on European countries will
be limited to some slowdown in
import demand from Russia. In the
escalation scenario, however, the
impact would be substantial, subtracting 0.9pps from eurozone GDP
growth owing to reduced trade and
investment flows as well as rising
energy prices, with Germany, Belgium, the Netherlands and Austria
being the most affected. Growth in
the main central European countries would be reduced even more.
Moreover, non-payment risk is likely to rise markedly as Russian
companies would face increased
financing problems and, perhaps,
also have less incentive to pay their
debts 1.
For more detailed information on the impact of the Russia-Ukraine crisis on the economies of Russia and Europe
please consult our Economic Insight "Putinomics: Tightrope walking", published on 8 April 2014.
Euler Hermes
Current account balance and financing of deficits
% of GDP
Political Hot Spot: Diverging fates
12
8
4
0
manFRed stameR
Current account balance
Turkey: A hiccup
not an earthquake
+3.0%
GDP growth
expected in Turkey
in 2014
Growth resilient in 2013, but
forecast to moderate in 2014
Economic output proved resilient
despite political and global financial
market turbulences in 2013. Real
GDP grew by 4%, up from 2.1% in
2012. Domestic demand was the
sole growth driver, with private consumption expanding by 4.6%, public
consumption by 5.9% and fixed investment by 4.3%. While exports
were almost flat at 0.1%, imports increased by 8.5%, leading net exports
to contribute negatively to full-year
2013 growth. In 2014, domestic demand is expected to moderate as a
result of monetary tightening and
TRY depreciation. While the latter
will support exports, the positive effect will be limited as many exporters need intermediate goods
that are imported. As a result,
stronger external demand is unlikely to fully offset weaker domestic
demand. EH forecasts GDP growth
Monetary policy, inflation
and exchange rate
TRY/USD exchange rate (right scale)
Inflation rate (y/y, left scale)
Monetary policy rate (left scale)
20
3.0
18
2.8
16
2.6
14
2.4
12
2.2
10
2.0
8
1.8
6
1.6
4
1.4
2
1.2
0
08
09
10
11
12
13
14
1.0
-4
Net external bank borrowing
-8
Net portfolio inv. inflows
Net FDI inflows
-12
00 01 02 03 04 05 06 07 08 09 10 11 12 13
to ease to 3% in 2014, before accelerating again to about 4% in 2015.
Risks to the outlook are slightly
more to the downside owing to the
potential impact of possible political
or economic turbulences in 2014.
Non-payment risk is likely to rise
somewhat in 2014 as a result of decreased growth and weakened currency, especially since some Turkish
companies supposedly have unhedged debt in foreign currencies.
the large current account
deficit remains a key concern
Turkey’s current account deficit widened to USD65bn or 7.9% of GDP
in 2013, up from 6.2% in 2012. Net
foreign direct investment inflows
remained modest at USD9.6bn
(1.5% of GDP) in 2013, covering just
15% of the current account shortfall. The large remainder continued
to be financed through short-term
capital inflows: net portfolio investment inflows reached USD23.7bn
(2.9% of GDP) and net external
bank borrowing accounted for
USD30.5bn (3.7% of GDP). As a
consequence, short-term external
debt increased sharply by 28% to
USD129bn in 2013, accounting for
about one-third of total external
debt or 16% of GDP. As the TRY depreciation has improved the competitiveness of Turkey’s export sectors to some extent, EH expects the
current account deficit to narrow
to a still considerable 6.5% of GDP
in 2014, with the financing structure to remain broadly unchanged.
policy responsiveness likely to
remain a source of vulnerability
The vulnerabilities associated with
large current account deficits predominantly financed through
short-term capital inflows, especially when combined with sluggish
policy responsiveness, were exposed by recent financial market turbulences in Turkey. While most
emerging markets avoided a second round of capital outflows and
sharp currency depreciation after
mid-December 2013 when actual
QE tapering was announced by the
Fed – in part thanks to solid macroeconomic fundamentals and in
part thanks to appropriate economic policies – the picture in Turkey
was different. Owing to the lack of
decisive policy responsiveness in
2013 combined with political tensions at an unfavorable time, the
TRY tumbled another 13% against
the EUR from mid-December
through January (following an 18%
fall in the previous seven months),
when the central bank finally hiked
its key policy interest rate by
550bps to 10%. The decisive but belated move has reversed the earlier
depreciation by two-thirds.
Meanwhile, this has encouraged
Prime Minister Erdogan to call for
a rate cut, and Central Bank Governor Basci has indicated that gradual
monetary easing may start soon.
However, early policy loosening
could once again increase the TRY’s
vulnerability to a fresh sell-off.
11
Euler Hermes
Industrial production and retail sales
Index 100=2005
Economic soft spot: Time to change
the business model, again!
daniela oRdoñez
mega events will not boost
growth
Past experiences have shown that
organizing major sporting events
(mega events) doesn’t always have
a positive impact on the host country’s economy. Brazil could be an
exception as it is not hosting one
sporting mega event, but three of
them in a row - the Confederations
Cup (2013), the Soccer World Cup
(2014) and the Olympics (2016) and as the presidential elections are
also taking place in October 2014.
However, despite the cluster of
events, the impact on growth (and
employment) would remain negligible in the short and medium
term. The Brazilian business model,
demand-based but with chronic
under-investment, seems to have
reached its limits. EH expects
Inflation and policy rates
%
Inflation rate (end of year)
Monetary policy rate (SELIC)
12
9
6
08
09
10
Industrial Production
180
Investment
rate:
160
11
12
13
20%
120
of GDP
100
one of the lowest
among the BRICS
growth to remain low at 2.0% in
2014 and 2.5 % in 2015, well below
the pre-crisis pace (around 5% per
year).
structural reforms are needed
to reinvigorate growth
The slowdown in the Brazilian economy is mainly due to structural
weaknesses. While domestic demand has benefited over the past
few years from the demand-supporting fiscal policy, low unemployment, increases in real wages and
massive foreign capital inflows, investment has remained low. This
has generated a mismatch between a dynamic domestic demand
and weak national supply. Even
though some steps have already
been made (large planned investment in infrastructure, public support to exporters), deeper structural reforms are needed to cope with
the local industry’s lack of competitiveness, infrastructure shortcomings and weak business environment. Until these reforms are
implemented, the Brazilian economy will continue to face internal
(inflation) and external (current account deficit) macroeconomic imbalances and growth prospects will
remain subdued.
CB inflation target: 4.5% +/-2%
3
07
Retail sales (volume)
140
Brazil: mega events,
low growth, high
inflation—wrong mix
15
200
14
80
05
06
07
08
09
10
11
12
13
inflation to remain high and
current account deficit wide
As the Brazilian economy will continue to suffer from bottlenecks, inflationary pressures are expected
to persist despite the tightening of
monetary policy. The central bank
has raised the key interest rate by
375bps since April 2013 to 11% in
March, which will stifle growth.
Also, the current account deficit
(3.6% of GDP in 2013) is not expected to narrow significantly (3.5% in
2014). As a consequence, the
country will remain dependent on
external financing, leaving it vulnerable to external shocks and exchange rate volatility.
public finances to be monitored
Several rounds of fiscal stimulus
have been implemented since
2011 in order to face activity deceleration. The overall fiscal deficit has
continued to widen, reaching 3.0%
of GDP in 2013 against 2.5% in
2011. As a result, uncertainties over
the government’s ability to maintain a prudent fiscal policy have
emerged and confidence in the fiscal framework has weakened.
Despite official announcements of
fiscal consolidation in 2014, fiscal
targets may not be reached.
Improving the fiscal situation is likely
to be a key challenge in 2014 1.
1
12
For more information please consult our last Country Report on Brazil “Economic activity constrained by
significant bottlenecks”, published on 31 March 2014.
14
Euler Hermes
Current account and exchange rate
65
4
3
60
2
55
1
0
maHamoud islam
50
-1
45
-2
India: Unleashing
growth
-3
40
-4
35
-5
-6
Current account
(% of GDP, left scale)
Exchange rate
INR/USD (right scale)
02 03 04 05 06 07 08 09 10 11 12 13 14
30
USD
4.4 bn
capital inflows
in January-February
2014
back in the game in 2014 and
2015
The Indian economy underperformed during the past 2 years with
GDP growth below +5% on average
compared to a potential of +7%
growth. Output expansion was
dampened by weak domestic demand. High inflation continued to
erode purchasing power, restraining private consumption growth.
Investment slowed, caused by
tightening financing conditions
and limited demand. Net exports
deteriorated on the back of an elevated import bill due to high commodity prices (oil and gold represent 34% and 8% of imports
respectively) and weaker than expected economic performance of
India’s main partners (U.S. and
China). In FY 2014-2015, GDP
Business confidence index
Manufacturing PMI
60
Service PMI
55
50
45
40
12
13
Sources: Bloomberg, Euler Hermes
14
growth is set to gradually recover
to +5.3% supported by exports, as
domestic demand is set to lag behind in the short run. The latter will
remain limited due to high cost of
credit and uncertainties surrounding the strategy of the next government.
Rajanomics: stabilizing prices,
reducing external imbalances
and improving confidence
Since May 2013, India has been on
the radar of financial markets and
investors: between May and September 2013 the currency depreciated (-16%). The country raised
concerns because of deteriorating
economic prospects and high twin
deficits. Consequently, the central
bank, under the influence of its new
governor, R. Rajan, has been very
responsive. The institution raised
the policy rates three times between September 2013 and January 2014 (+75bps to 8%) in order
to preserve the currency and to
contain inflationary pressures. It
also improved its communication,
initiated a forward guidance strategy and a CPI-inflation targeting
system (inflation target set at 8%
by 2015). The situation has therefore stabilized in Q1 2014: tensions
about currency decreased, inflation
decelerated, capital inflows re-
bounded (capital inflows of
USD4.4bn January-February 2014)
and market and business confidence recovered.
building strong macro-financial
foundations
In order to ensure a sustainable
economic recovery, structural
weaknesses need to be tackled, especially by reducing the volatility of
portfolio flows and attracting further foreign investments (FDI). For
the former, the change of policy
management initiated by Rajan has
already sent a strong signal regarding his commitment to preserve financial stability. Further, the announced liberalization of the
financial sector through higher
openness to foreign actors and the
development of new financial services will surely be a game changer
for the country. The current government initiated reforms to encourage FDI in key sectors like retail
(22% of GDP) and infrastructure.
However, their benefits have yet to
be felt as the country suffers from
regulatory hurdles. Regulatory
framework changes will surely take
time even if there is a renewed
leadership. Therefore, financial stability in the medium-term will be
supported mainly by monetary authorities.
13
Euler Hermes
GDP breakdown by sector
%
100
80
60
andRew atkinson
40
Services
20
Industry
Agriculture
South Africa: No longer
top dog?
◾can south africa, now without the moral compass
of former president nelson
mandela, steer a course that
will alleviate some of the
structural rigidities, including high unemployment,
large income inequalities,
weak service delivery, troubled industrial relations and
fiscal and current account
deficits?
◾ Recent data have not
been encouraging or supportive, particularly now
that south africa is no longer the largest african economy.
14
Gdp growth will remain lacklustre (+2.8% in 2014, +3.5% in
2015), with downside risks
GDP growth in Q4 2013 rebounded to +3.8% q/q annualized, after
+0.7% in Q3, boosted by manufacturing output (+1.9pps contribution) and mining (+0.8pps).
However, monetary policy remains tight (unchanged in March)
to protect the ZAR and international reserves, gold prices are weak
(-USD300/ounce y/y at end-March
2014) and fraught labour relations
restrict output growth in some key
sectors, particularly platinum mining. GDP is unlikely to achieve
rates of expansion of +5% or above
that are necessary to assist sociodevelopment needs. In March, parliament gave partial approval of the
Minerals and Petroleum Resources
bill intended to allay concerns of a
wholesale nationalization of the
mining sector but that will facilitate
potential state control of some mining assets. The bill raises concerns
that more populist policies may
emerge and this could further depress business and investor sentiment at a time when vulnerable
emerging markets are already
seeing capital outflows and currency weakness.
0
Nigeria old Nigeria new South Africa
2010
Nigeria old Nigeria new South Africa
2012
Sources: IHS Global Insight, Euler Hermes forecasts
nigeria takes over top spot
Nigeria’s rebased data show that
GDP in 2013 was around
USD510bn (previously estimated
at USD292bn), compared with
South Africa’s USD350bn. Other
African economies are being similarly re-assessed (Ghana in 2012,
Kenya upcoming), which will alert
international investors to potential
markets in Africa outside South
Africa. The latter continues to hold
commercial advantages in terms
of ease of doing business and relatively better infrastructure but higher-growth economies elsewhere
may lead to some investment diversion from South Africa, particularly as concerns relating to nationalization (and other ANC policy
redirection) are rising.
Fiscal deficits, despite relatively
sound budgetary management
February’s budget continued the
country’s recent record of generally
sound fiscal management, despite
a temptation for budgetary expansionism in an election year. Indeed,
the budget deficit is projected to
fall to -2.8% of GDP in FY2016-17
(-4% in 2013-14) and government
debt will stabilize at 44.3% of GDP.
EH expects relative fiscal discipline,
combined with low external debt
obligations, will keep sovereign ratings stable. However, capped state
spending means that structural rigidities (including high unemployment, rural poverty, skewed income distribution and weak
education provision) are unlikely to
receive sufficient corrective attention in the short-term.
elections may be a formality but
political dynamics could be
changing
President Jacob Zuma looks set to
secure a second presidential term
in May but his popularity has
waned, partly reflecting allegations
of cronyism and corruption and
also the electorate’s perception that
living standards for all have made
little headway. Additionally, the tripartite alliance of the ANC, Congress of South Africa Trade Unions
(COSATU) and the South African
Communist Party (SACP) appears
more fractured and other party organizations are gaining support,
perhaps suggesting a fundamental
change in longer-term political dynamics.
USD
510 bn
Nigeria's revised GDP
for 2013
Euler Hermes
Manufacturing hourly earnings
Index 100=2009
United States
120
Germany
Japan
110
100
FRÉdÉRic andRes
Germany vs. France:
Need to be in sync
90
80
05
06
07
08
09
10
11
12
13
Sources: OECD, Euler Hermes
+1.7%
◾the new French pm has
announced a slew of reforms that aim at bolstering
firms’ competitiveness and
households’ purchasing power. these will not lead to
a quick lowering of the deficit but will support other
eurozone countries via higher imports.
◾the German export juggernaut is facing stiffer
competition from Japan and
the u.s. and its “high quality-premium price” business model might not fit
with the deflationary environment in the eurozone.
◾ convergence between
the two countries is needed
but will take time.
France: the quintessential
demand-warrior
In 2013, France failed to meet its inital fiscal deficit target of -3% of GDP,
despite President Hollande’s reassurances after his election in 2012.
Following April’s reshuffle, the new
government is keen on bolstering
households’ purchasing power and
firms’ competitiveness, which
seems unlikely to lead to a quick
lowering of the fiscal deficit : we
forecast that it will only fall to -3.9%
in 2014 and -3.3% in 2015. This will
definitely lead to some tensions
with Germany and the European
Commission. However, by not
complying with fiscal targets,
France has supported (and will continue to support) its eurozone
neighbors via higher imports.
Cumulative French additional imports
in 2013-2015
EUR mn
3,500
+0.7%
3,000
2,500
expected
GDP growth
in France in 2014
2,000
1,500
1,000
500
Finland
Ireland
Luxembourg
Austria
Greece
Portugal
Netherlands
Italy
Spain
Belgium
Germany
0
Throughout 2013-2015, we estimate that France will have generated at least EUR10bn in additional
demand towards its main eurozone partners. The counterpart, of
course, is that France’s current account deficit will endure: given its
‘twin deficits’, the French publicsector will continue to be reliant on
capital inflows.
Germany: chinks in the exportwarrior’s armor?
In contrast to France, Germany’s
economic model is that of a thrifty
and export-driven industrial powerhouse, as evidenced by its large
current-account surplus. Still, if we
believe recent PMI export orders
data as well as Bundesbank data,
this may not last; Germany’s export
sector is indeed facing headwinds
both from within the eurozone and
from abroad. With regard to the
latter, it is confronted with renewed
competition from Japan and the
U.S., whose main export sectors
overlap with those of Germany
(specialized machines, engines,
cars…). In Japan’s favour, the Yen
has fallen markedly since end-2012
(by around 20%) and firms’ profitability is rocketing as real wages
have gone down. Speaking of
wages, they are increasingly dynamic in Germany (+2.7% y/y in Q4
2013) and also much more so than
in the U.S. Finally, high energy
expected
GDP growth
in Germany in 2014
prices in Germany remain a drag
compared to the U.S. Within the
eurozone, the ongoing disinflation
process, driven primarily by internal
devaluation, hampers deleveraging
and puts a lid on the recovery. Given that around 40% of German exports go towards the eurozone,
Germany is starting to face a tough
dilemma: should it lower its export
prices to maintain market shares,
at the cost of lower profit margins?
Or should it restructure its industry
so as to produce lower-quality
goods at a lower cost?
converging towards each
other?
All in all, we believe that France and
Germany’s economic models need
to converge towards one another.
This may take time. Still, recent developments are encouraging: reforms in France as well as ongoing
wage moderation over the next
few years, combined with higher
wages in Germany will contribute
to the rebalancing of the two
economies, for the benefit of the
whole eurozone. The ECB has a key
role to play in order to smooth the
transition period by allowing for
higher inflation differentials between countries and therefore
higher nominal growth.
15
Euler Hermes
Advanced indicators for U.S. economic activity
Index 100 = Q1 2008
Confidence Bright Spot: Keeping
the momentum
Retail sales (m/m, %)
60
Manufacturing PMI index
2
55
1
50
0
45
-1
dan noRtH
United States: A difficult
winter sets the stage for
a spring rebound
◾u.s. Gdp is expected to
grow by 2.8% in 2014, an
improvement over 2013’s
1.9%, but still below the
long-term average, despite
continued Fed accommodation and temporarily reduced political uncertainty.
a challenging winter has
been a headwind but one
which will be offset by a
spring rebound.
Gdp growth is likely to reach
+2.8% in 2014, still below trend
Much of the U.S. experienced record cold and snow in the winter
months, causing a significant drag
on the economy. There were sharp
reductions in auto sales, retail sales,
personal income, manufacturing
output and housing activity, all of
which will likely cause Q1 real GDP
to grow at around only 2% on an
annualized basis. However the difficult winter also set a stage for a
rebound in economic activity in the
spring, which will help boost Q2
GDP and is likely to push full year
2014 GDP growth to 2.8%, still below trend, but better than 2013’s
1.9%. A further improvement to
40
growth near trend could be promoted by slowly rising confidence
and income, but will still be impeded by a weak labor market.
manufacturing likely to improve
but housing still at risk
Manufacturing seems poised for a
strong recovery as unit labor costs
continue to fall and industrial production, durable goods orders, and
the ISM index all rose in February.
Manufacturing employment has risen for seven consecutive months,
and pent up demand for autos is
likely to clear out durables inventories and spur new orders. However, the housing sector remains a
key risk. Both new and existing
4.1
2.6
4
3
3.0
3.2
2.5
1.9
Net exports
2
Stocks
1
Investment
Public consumption
0
Private consumption
GDP
-1
-2
Q3-13
Q4-13
Q1-14
Sources: IHS Global Insight, Bloomberg, Euler Hermes
16
Q2-14
Q3-14
Q4-14
13
14
Sources: IHS Global Insight, Bloomberg, Euler Hermes
GDP growth and contributions to GDP growth
5
12
home sales have fallen in three of
the past four months on a combination of higher mortgage rates, rising prices, and tight inventories,
conditions which cannot be easily
cured by improving spring weather.
the Federal Reserve will remain
highly accommodative
The Federal Reserve is likely to completely terminate its quantitative
easing programs by the end of
2014. However the Fed’s balance
sheet will still be almost five times
as big as before the recession, supplying an enormous amount of liquid excess reserves waiting to be
deployed into the economy. In addition, new Fed Chair Janet Yellen
abandoned the threshold for raising interest rates at a 6.5% unemployment rate, and instead suggested that rates may remain low
until the middle of 2015. Unprecedented liquidity and 0% interest
rates will still be highly accommodative going forward. On the fiscal side, while there has been
‘agreement’ on the main features
of a federal budget (more taxing
and spending), it still appears that
a budget is unlikely to be implemented soon, an issue which will
contribute to the uncertainty of the
November elections. 
-2
Euler Hermes
Domestic savings
% of GDP, 2014f
60
the momentum
maHamoud islam
52%
Domestic
savings rate
in 2013
50
40
30
20
10
United States
Japan
Germany
South Korea
United Arab Emirates
Saudi Arabia
0
China
China: Transformation,
act two
◾estimated at 52% of Gdp,
the domestic savings ratio
is one of the highest in the
world. mobilizing this resource will be pivotal to ensure future growth.
Growth to stabilize in H2 2014
Chinese GDP growth proved resilient in 2013, rising at a similar rate
as the previous year (+7.7%). In
2014, the economy is projected to
decelerate to +7.5% on the back of
slower investment. The main part
of the adjustment should occur in
H1 2014, with (i) decreasing external trade contribution reflecting
data distortions (statistical effects
of Lunar new year holidays, overinvoicing problem), (ii) slowdown
in private investment following
more stringent financial regulation
and (iii) cautious household behaviour. The economy is likely to stabilize in H2 on the back of supportive macroeconomic policies
(acceleration in infrastructure
spending and adequate monetary
supply) and rise in private
consumption.
FDI and imports of consumer goods
Foreign Direct Investment Position with the US (million USD, left scale)
9,000
Consumer goods imports (% of total imports, right scale)
10
8,000
7,000
9
6,000
5,000
4,000
8
3,000
2,000
1,000
0
03 04 05 06 07 08 09 10 11 12 13e 14f
Sources: National Sources, Chelem, Euler Hermes
7
Rising domestic market
The transition has started and positive signs of the economic transformation are already appearing.
First, the government moved from
a ‘strict’ growth targeting framework to a more balanced one, aiming simultaneously at job creation, price stability and GDP growth
target. The GDP growth target has
been relaxed and a small deviation
(-0.3pp) should be tolerated as
long as the job creation target is
met (11 million jobs). Secondly, latest data reveal some evidence of
a rising consumer market with
strong fundamentals. Indeed, output of the services sector (46% of
GDP) overtook industrial production (44%) for the first time last
year. Consumer goods as a share
of Chinese imports are on an upward trend becoming the second
largest contributor to total imports
growth after primary resources.
Thirdly, the normalization in financing conditions is ongoing with improvements in credit quality. Indeed, total social financing, which
is a broad measure of credit, shows
signs of deceleration especially in
its non-bank and off-balance-sheet
components and gives some evidence of the effectiveness of the
government’s efforts to curtail shadow banking. Bank lending is gaining traction and the latest report
of the PBoC reveals that demand
for bank lending is increasing even
if approval conditions have been
tightened.
unleash savings will be key
While the export-led growth model
is losing steam on the back of decreasing competitiveness, the
country needs to find new engines
for growth. Promoting domestic
consumption, through bank lending and job creation, is one way
of doing so. Investing in knowledge
and building high value-added industries is a second. Both will have
a positive impact on long-term
growth. Key milestones to enhance
this strategy were set at end-2013
when the central government simplified procedures to invest abroad
in non-resource sectors. In that
context, Chinese companies are likely to accelerate their investments
in companies in advanced economies to benefit from their knowledge and quality management.
Some evidence of this process has
already been brought to light at the
beginning of this year with the takeover of several western companies mainly in the high-tech sector
and the automotive sector which
shows a gradual shift of interest of
Chinese investors from real estate
and energy to high value-added industries.
17
Euler Hermes
Sovereign wealth funds
USD bn, 2014f
the momentum
UAE
Saudi Arabia
Kuwait
andRew atkinson
Qatar
Oman
Gulf Cooperation
Council: Oiling the
wheels
Gdp growth in 2014-15 will be
boosted by state spending
The GCC countries account for over
29% of global oil reserves and over
23% of gas reserves. Output from
the hydrocarbon sector was a key
driver of growth in the period from
2011 to date, when benchmark oil
prices were USD100/barrel, or
above. With a combined population
of only 49 million, oil export revenues have enabled foreign exchange reserves to remain high and,
in particular, accumulation of financial assets held in Sovereign Wealth
Funds (SWF). The combined assets
held in the SWF of the GCC countries is estimated at around
USD2,250bn, with USD975bn held
◾while economic growth
in the middle east is hampered by a background of
political transition, civil war
and contagion from these
regional fractures, the Gcc
countries, while not immune from some underlying causes of the arab
spring, are maintaining relatively high rates of Gdp
growth.
◾this is forecast to continue at a time when international oil prices are flat,
with downward pressures
through 2014-15, and reflects financial strength that
enables these countries to
boost domestic demand.
Real GDP growth
%
2012
2013
2014f
6
5
4
3
2
1
0
UAE
Saudi Arabia
Middle-East
Sources: IHS Global Insight, Euler Hermes forecasts
18
Bahrain
0
200
400
600
800
1,000
Sources: National Statistics, Euler Hermes
by the UAE and USD680bn by Saudi
Arabia. The financial cushion provided by such reserves (of variable
liquidity) allows GCC countries to
boost domestic demand through
state spending on infrastructure
projects (thereby boosting jobs and
future growth) and on social spending (health, education and other
welfare provision). Trade opportunities with the GCC are therefore
likely to remain relatively buoyant
in the forecast period, even if global
conditions are not supportive. EH
expects GDP growth in the Middle
East of +3.6% in 2014 and +4.2% in
2015, with most GCC economies
expanding by rates at or above the
regional average.
the direction of state spending
will therefore be more balanced
In previous periods of high oil
prices, recycling of petrodollars led
GCC countries to invest in external
assets, including property and equity purchases in European and
North American markets. One consequence of the Arab Spring and
associated concerns relating to potential social pressures is that additional spending is now channelled into regional markets (other
GCC but also countries such as
Egypt, Jordan and Morocco) and
into domestic markets to boost
growth and local incomes. The GCC
USD
2,250 bn
combined asset
strength of Sovereign
Wealth Funds
countries will continue to invest
abroad (investment returns and
portfolio diversification) but use of
financial assets is now more balanced between domestic, regional
and international markets.
doing business with the Gcc is
improving
There are lingering concerns relating to the openness of markets and
business regulations in the GCC but
in the World Bank’s Doing Business
survey for 2014, five of the six countries ranked in the top 50 out of 189
economies assessed on factors including investor protection, trading
across borders, contract enforcement and insolvency resolution.
Kuwait (104th) is the exception but
the UAE (23rd) and Saudi Arabia
(26th) score particularly favourably.
The concatenation of these factors
(buoyant GDP growth, high domestic spending and improved
business environments) suggests
that trade with the GCC countries
and doing business within their
markets are likely to be bright spots
in the evolving global economy.
Euler Hermes
Real GDP and components
Index 100=Q1 2008
the momentum
Real GDP
106
Domestic demand
Consumer spending
104
102
100
ana boata
98
96
94
Southern Europe and the
UK: Austerity afterlife
southern europe: Return in confidence
After several years of painful adjustments and a deep financial and
sovereign crisis, Southern European
countries are finally returning to
positive growth, mainly thanks to a
pick-up in exports on the back of
competitiveness gains. Combined
with the ongoing fiscal adjustment
efforts and reduced investor appetite for emerging markets, this
has triggered a broad return in confidence and therefore a rise in portfolio inflows and foreign direct investments. That said, short-term
volatility cannot be ruled out as a
bailout exit strategy is still not defined for Portugal and Greece and
as uncertainties remain on the
soundness of the banking system.
uk: domestic economy to maintain the positive momentum
In 2013, UK GDP surprised to the
upside, growing at the fastest pace
since 2007. The main driver for
growth was domestic demand, notably household consumption that
Inflation rate
%
2012
2013
2014f
2015f
Germany
France
Italy
Spain
Netherlands
Belgium
Austria
Greece
Portugal
2.0
2.0
3.0
2.4
2.8
2.6
2.5
1.0
2.8
1.5
0.9
1.2
1.5
2.5
1.1
2.0
-0.9
0.4
1.2
0.9
1.0
0.7
1.1
1.0
1.6
-0.5
0.7
1.5
1.2
1.2
1.0
1.7
1.4
1.9
0.6
0.9
eurozone
2.3
1.3
1.0
1.3
outlook
n
n
n
n
n
n
n
n
n
benefited from an improved labor
market. Going forward, monetary
policy is expected to remain accommodative (at least until 2015)
while public policies are likely to be
increasingly supportive of the private sector. Business confidence is
rising and corporations are benefiting from an already very strong
business environment. The fiscal
burden is less restrictive than other
European countries and further
business-friendly measures have
been announced: corporate tax
rate cuts in 2014 and 2015 (to the
lowest level within the G20 group
of countries), measures to stimulate bank credit to SMEs and exporting firms, increase in infrastructure spending, financing for
strategic industries and a new shale
gas field allowance.
time for reforms: from leaders
to laggards!
The European crisis has been a major driver of reform action and the
eurozone countries under EU/IMF
financial assistance programs
(Greece, Ireland, Portugal and
Spain) have been the most reactive.
In Italy much still needs to be done
but good progress has been made
under the Monti government in
2012. The Renzi government has
increased expectations for further
action in late 2014 while first measures aimed at reducing fiscal pressure on companies and on low income earners should give a boost
Sources: Eurostat, Euler Hermes forecasts
1
For more detailed information on the reform package announced by the Renzi government please
consult our Economic Insight "Renzimania: Will charm survive tough reforms?", published on 8 April
2014.
92
90
88
08
09
10
11
12
13
14
15
to GDP growth in 2014-15
(+0.2pp) 1.
deflationary pressures remain
the main downside risk in
southern europe
The prolonged period of recession
and decreases in food and energy
prices have triggered significant
downside pressures on prices.
Long-lasting low inflation is a
downside risk for both private and
public sectors. Firms’ profitability
could be endangered in a context
of increased competition while the
rise in real interest rates is likely to
put pressure on the deleveraging
process. Inflation rates are expected to remain below or close to 1%
at end-2014. The strength of the
euro remains an issue given the eurozone exports specialization in
medium-range products. The ECB
is expected to take further action,
i.e. further small cuts in interest
rates after June and additional nonconventional measures (private asset purchases/ targeted liquidity for
SMEs) in the fall after the end of
the ECB Asset Quality Review and
Stress Tests.
Real GDP growth
%
2012 2013 2014f 2015f
eurozone
Spain
Italy
Portugal
Greece
Ireland
uk
-0.6
-1.6
-2.5
-3.2
-7.0
0.2
-0.4
-1.2
-1.8
-1.4
-3.9
-0.3
1.0
0.6
0.4
1.0
-0.1
1.6
1.4
1.2
0.9
1.3
0.6
1.8
0.3
1.7
2.4
2.5
Sources: Eurostat, Euler Hermes forecasts
19
Euler Hermes
1
Macroeconomic
and Country Risk Outlook
Business Insolvency Worldwide
economic Research
euler Hermes Group
Economic
Outlook
Economic
Outlook
no. 1200-1201
February 2014
www.eulerhermes.com
www.eulerhermes.com
Economic
Outlook
series
Economic
Outlook
no.1204
no. 1202-1203
December 2013-January 2014
october-november 2013
06/03/14 18:49 Page2
Global Sector Outlook
www.eulerhermes.com
Patching
things up
Fewer insolvencies, except in Europe
Top Ten
Game Changers
in 2014
All things come
to those who wait
Green shoots for one out of four sectors
Getting back in the game
Economic Research
Economic Research
1
Already issued:
no. 1187
◽ special Report
The Reindustrialization of the United States
no. 1188
◽ special Report
Transport: A two-speed world
no. 1189-1190
◽ macroeconomic, Risk and insolvency outlook
World heads for sixth year of crisis: something the Maya did not forecast!
no. 1191
◽ Global sector outlook
Now where did global demand go?
no. 1192
◽ special Report
Trade Routes: What has changed, what will change
no. 1193
Europe: still looking for a second wind
no. 1194
◽ business insolvency worldwide
Corporate insolvencies: the true nature of the eurozone crisis
no. 1195-1196
The world at a crossroads
no. 1197
Reconciling economic (dis)illusions and financial risks
no. 1198
◽ special Report
The Mediterranean: Turning the tide
no. 1199
◽ macroeconomic and Risk outlook
Half-baked recovery
no. 1200-1201
◽ business insolvency worldwide
Patching things up: Fewer insolvencies, except in Europe
no. 1202-1203
Top Ten Game Changers in 2014: Getting back in the game
no. 1204
All things come to those who wait: Green shoots for one out of four sectors
no. 1205-1206
Hot, bright and soft spots: Who could make or break global growth?
To come:
no. 1207
20
◽ special Report
Economic Research
Euler Hermes
economic Research
euler Hermes Group
Economic
insight
our
available
publications
Back issues:
◽Tire industry on a roll > April 10, 2014 (En,
fr)
◽Putinomics: Tightrope walking > April 8,
2014 (En)
◽Renzimania: Will charm survive tough
reforms? >April 8, 2014 (En)
◽The reindustrialization of the U.S.:
A 2014 update > April 2014 (En)
◽Fewer non-payments in 2013for Italian
companies, but more severe > February
◽The Fragile 10: Turbulences but no
crash > February 6, 2014 (En)
◽Frequently Asked Questions (FAQ) on
deflation risk in the eurozone
> February 6, 2014(En)
◽ Italian companies benefit from exports
but continue to face high non-payments in
the domestic market >November 14, 2013 (En)
◽ Cracks in the U.S. Housing Market?
>November 5, 2013 (En)
◽China: 6 firms out of 10 managed to
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risk and opportunities >October 30, 2013 (En)
◽ Russia, a promising land for Agrifood
> February 17, 2014 (En)
>October 18, 2013 (En)
19, 2014 (En)
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industry >October 10, 2013 (En, Fr)
◽ Hungary : despite overall economic
fragility, some sectors have retained
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◽ En France à fin juillet 2013, toujours
aucun signe d’amélioration du côté des
défaillances d’entreprises, bien au
contraire >August 29, 2013 (Fr)
◽ China: Mini credit crunch for a mega
economy? >August 19, 2013 (En, Fr)
◽ The eurozone needs a credit policy
>July 31, 2013 (En, Fr)
country
Report
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Euler Hermes Economic Outlook
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Economic
Outlook

Hot, bright and soft spots

Transcription

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