darwinism 2.0: navigating the global mess · 2018-04-04 · strong. •supported by a labor market...

1

Darwinism 2.0:

Navigating the

global mess

Ludovic Subran

Chief Economist, Euler Hermes

ICTF Lisbon – May 11, 2015

2

Agenda

1 Growth, Insolvencies and Sector Risks

2 Americas

3 Europe

4 Africa and Middle East

5 Asia Pacific

3

2013 2014 2015 2016

Global GDP growth 2.6 2.6 2.7 3.1

World trade growth 2.9 3.3 4.0 4.5

United States 2.2 2.4 2.9 3.0

Brazil 2.5 -0.1 -0.7 1.3

United Kingdom 1.7 2.6 2.2 2.0

Eurozone -0.4 0.9 1.3 1.5

Germany 0.2 1.6 1.7 1.6

France 0.4 0.4 1.0 1.4

Italy -1.9 -0.4 0.4 0.9

Spain -1.2 1.4 2.5 2.3

Portugal -1.4 0.9 1.3 1.5

Russia 1.3 0.6 -5.5 -4.0

Turkey 4.1 2.9 3.2 4.0

Asia 5.1 4.7 4.8 5.1

China 7.7 7.4 7.1 7.0

Japan 1.6 -0.1 1.0 1.5

India 6.9 7.5 7.7 7.8

Middle East 2.5 2.9 3.0 4.1

Saudi Arabia 2.7 3.6 2.5 3.5

Africa 4.1 3.8 3.8 5.0

South Africa 2.2 1.5 2.0 3.0

* Weights in global GDP at market price, 2013

2015: Still no happy ending

2015 will be the last year below 3% for GDP

growth

Downside risks

Upside risks

New emerging markets boosters

Confirmed reindustrialization

in the US/UK

More Europe, Better Euro

Which consumer will save the world?

Geo-Politics, interventionism and commodity prices

Liquidity divergence: USD,

EUR and RMB

2014: Disappointment, Deflation and Divergence

2015: Liquidity, Demand and Politics

Oil

prices

4

• Germany • Private consumption

growth is stronger than expected.

• Net exports to benefit from the global recovery.

• Private investment to remain muted.

• France • Private consumption to

improve helped by the drop in oil prices

• Investment to remain a drag.

• Spain • Major support coming from

export growth.

• Domestic demand is recovering but the labour market still has far to go.

• Italy • Exports will benefit from

the lower euro.

• Credit to pick-up progressively helped by the ECB QE.

• The USA • We expect a very weak Q1 in

the US to be shaken off.

• The consumption-led recovery should continue.

• Investment growth is expected to drop due to lower oil prices impacting shale E&P

• Employment growth has recovered, but real wage growth is sluggish.

• The UK • Q1 saw a slowing in the

service sector, flat industrial production and a drag on growth from construction.

• However consumer driven domestic demand remains strong.

• Supported by a Labor market recovery that continues to surprise positively.

• With the election behind us some of the political uncertainty has been removed but we remain watchful.

• Brazil • Currency depreciation and high

inflation will restrain private consumption growth

• Underinvestment remains a strong drag on growth

• Business climate remains tough and sentiment is low.

• China • “Quantity to Quality” growth

strategy (smooth landing)

• Accommodative policy mix

• But insolvencies to gather pace given the financing issues and the demand constraints

• Saudi Arabia • Marginally weaker government

and investment spending

• Primarily weakened by net exports.

• Russia • Domestic demand situation

continues to worsen inline with our scenario.

• Main risk from an escalation of economic rather than individual sanctions

2015: Selective happy endings ahead (2)

Could this finally be

Europe’s year (!)

Outperformers have a

difficult start to 2015

Four very different

EM slowdowns

5

Oil and the euro: How low can they go?

Unclear whether short-term boosters will last;

Full pass-through to real economy takes time

Sources: Bloomberg, Euler Hermes

The lower euro and the oil price are a boon

for many countries, incl. Europe

Brent and EURUSD

Cautious Scenario 1 (85%): EURUSD at

1.08 and oil up to 71$/barrel. Broad

improvement in eurozone but lagged effect

on corporates. Rest of the world: modest

hikes in Q4 for the Fed and China meets

target.

Optimistic Scenario 2 (15%): Parity and

62USD/barrel. Upswing is larger and

faster, eurozone at 2.0%. Short-term drivers

remain and pass-through accelerates

through confidence effect

Oil prices (-50%) = ½ Supply glut +

¼ Geopolitics + ¼ Lower financiarization

Eurodoll (-25%) = ½ Monetary policies

+ ½ speculation (PPP 1.15 / Surplus €240bn)

6

Oil and the euro: How low can they go? (2)

Seven years on: Where do we stand and where have we been?

Sources: Euler Hermes

“Normal” recovery

L-shaped recovery

“New-normal” recovery

W-shaped

recovery

US

UK

Germany

Italy

France Spain

India

China

Russia

Brazil

Progress over time

Gro

wth

Baseline

EZ

Scenario 1

EZ

Scenario 2

7

Sources: national figures, Euler Hermes

Insolvencies typically remain above pre-crisis

levels (30 countries, i.e. 7 out of 10)

Business insolvencies

2015 vs 2007 level

(in %)


Global trend of insolvencies (-2% in 2015

after -14% in 2014) masks a set of

heterogeneous situations and perspectives EH Global Insolvency Index

and regional indices

(yearly level basis 100 = 2000)

Insolvencies: On the mend

8

2015 insolvency trends: More increases, fewer decreases (but stronger)

Sources: national figures, Euler Hermes Sources: national figures, Euler Hermes

Corporate insolvency trend in 2016

relative to 2015

Corporate insolvency trend in 2015

relative to 2014 Main updates for 2015

(vs. Q4 2014 forecasts)

Worsening trends: mainly Brazil and

Russia, but also Finland, Norway, Poland

Trend reversal (rebounding

insolvencies): Turkey, Baltics and

Switzerland

Weaker resilience: Greece,

Denmark

Better resilience: Colombia

Trend reversal (declining insolvencies):

Germany, France, Belgium and Luxembourg

Improving trends: US, UK, Ireland, Spain

and the Netherlands

Special cases: Portugal (lagging effect due

to introduction of a new restructuring

procedure and of the IT problem on the

Justice side) and Hungary (lagging effect of a

new category of forced cancellation)

Insolvencies: On the mend (2)

9

Sector Risk Changes at end of Q1-2015: 26 upgrades, 40 downgrades

Sector dynamics (1): Expect turmoil

10

Sector dynamics (2): Transport is up but

machinery and equipment is down

… while Exploration and Production investments

are forecast at -15% in 2015, even less revenue

for engineering firms

Source: Euler Hermes

Transport is the main beneficiary of cheap

oil, enhanced demand and profitability is

already observed…

Subgrade changes for Transport

(Q1 2015 evaluation)

Sources: IFP, Barclays, Euler Hermes

Global E&P investments

11

Sector dynamics (3): Recovered household

confidence will nurture private consumption

Sources: Oxford Economics, Euler Hermes forecasts

Wholesale and Retail sales to grow +5% in

2015 thanks to private consumption growth

(forecast +3% in 2015)

Retail & wholesale distribution, Gross

output, billion real US$

Additional expenditures due to lower oil

prices to range from 0.1 to 0.3pp of GDP

Additional expenditures (EURbn and GDP pps)

Sources: Eurostat, Euler Hermes

12

Stars finally align now: Pass-through to follow (1)

Equity markets: Early winners of another

liquidity boost

Equity indexes


Total investment, index Q1 2008 = 100

Investment growth will slowly pick-up in the

advanced economies, but divergence

between countries remains

Sources: Eurostat, IHS, Euler Hermes

80

90

100

110

120

130

140

150

S&P 500

Nikkei

FTSE

Eurostoxx 600

13 Source: Euler Hermes


Price effect to follow. Since March 2014,

only -10% in REER and lowering inflation

(-1.1 point). QE v. oil prices?

Real effective exchange rates and inflation


Industry turnovers, 4Q/4Q

Turnover growth is picking up, in line with

nominal growth, only with a two quarter lag

14


Sources: IHS, Euler Hermes

The lower euro will help Eurozone exports

to increase above their pre-crisis level

2015 export gains by country


Lower energy costs will increase

corporates’ margins in 2015

Non-financial corporations’ margins

(% of value added)

15

Agenda


2 Americas

3 Europe


5 Asia Pacific

16 Source: BEA, Euler Hermes

United States: Bad news: Q1 repeated recent pattern…

Good news: Q2-4 to repeat recent pattern

0.6%

3.0%3.1%

2.6%

5.1%

4.4%4.1%

4.2%

0%

1%

2%

3%

4%

5%

6%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010-2014 1950 - 2008

Real Gross Domestic Product (GDP) During Recoveries, annualized quarterly growth rate

Why? Common themes: weather, oil &

gov’t finances

2010: Oil in Q1 2010 was $79/bbl, more than

80% higher than the Q1 2009.

2011: High oil prices. Near record snowfall.

Budget battles, S&P lowered its outlook on

U.S. debt. Arab Spring. Fears of euro

disintegration. Tsunami and nuclear accident

in Japan.

2013: Higher taxes went into effect on

January 1st, including expiration of the payroll

tax break, impacting 80% of American

families.

2014: Near record snowfall.

2015: Record snowfalls, port strike likely to be

temporary effects. Strong $ not so much. But

Q2-Q4 to be driven by pent-up consumer

demand.

17

The collapse in the Chicago PMI should

be weather driven and will see greater

pent up demand

Despite lagging employment growth

demand continues to recover strongly

Consumer Spending vs. Employment,

Jan-2008 = 100

Sources: IHS, ISM, Euler Hermes Sources: IHS, BLS, BEA, Euler Hermes

Chicago and National Manufacturing PMI

United States: A consumer-led recovery

30

40

50

60

70

08 09 10 11 12 13 14 15

Chicago PMI

ISM Manufacturing

85

95

105

115

08 09 10 11 12 13 14 15

Personal consumption expenditures

US employment Total

18

8.1%

4.6%4.2%

3.1% 3.0%

0%

2%

4%

6%

8%

10%

12%

14%

Ve

ne

zu

ela

Arg

entin

a

Bra

zil

Co

lom

bia

Ch

ile

Me

xic

o

Pe

ru

Inflation rate (y/y, %)

Inflation target

... ... ...

68%

17%

60

65

70

75

80

85

90

95

100

105

110

2013 2014 2015

Brazil

Chile

Colombia

Mexico

Peru

Inflationary pressures weigh on consumer

confidence

Latin America: inflation rate* and inflation target

(%)

Latin America (1): Internal and external monetary

challenges

*as of March 2015

Sources: National sources, IHS, Euler Hermes

Falling commodity prices and Fed’s policy

normalization generate downward pressures

on exchanges rates

Latin America: exchange rate vs. USD

(100=01/01/2013)


Ap

pre

cia

tion

D

ep

rec

iatio

n

19

Renewed pressures on public finances could

lead to social tensions in some countries

*hydrocarbons, agriculture, metals

Sources: OECD, IMF, CEPAL, Euler Hermes

Latin America (2): Falling commodity prices

will be a game changer in 2015

Latin America: dependence of public finances on

commodity revenues*

Sh

are

of

co

mm

od

itie

s in

pu

blic r

even

ues (

% o

f to

tal)

Public spending (% of GDP)

Venezuela

Chile

Colombia

Argentina

BoliviaMexico

Ecuador

Brazil

Peru

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

20% 25% 30% 35% 40% 45% 50%

-3.4

-2.1

-1.2

-0.7-0.7

-0.4

-0.1 0 0

0.1

0.6 0.60.7 0.8

1.0 1.0

1.4 1.41.6 1.6

-4.0

-2.0

0.0

2.0

Venezuela

Ecua

dor

Co

lom

bia

Trin

. &

Tob

ago

Mexic

o

Latin

Am

erica

Bo

livia

Arg

en

tina

Bra

zil

Pe

ru

Uru

gua

y

Costa

Ric

a

Gu

ate

mala

Pa

rag

ua

y

Nic

ara

gu

a

Dom

. R

ep

.

Ch

ile

El S

alv

ad

or

Ho

ndu

ras

Pa

na

ma

Sources: Euler Hermes estimations

Low oil prices to shave regional

growth by -0.4pp in 2015, to a mere +0.5%

Direct effect of a -40% fall in oil price

on real growth (pps)

20

…will also weigh an already weak activity

Sources: National sources, Euler Hermes

Brazil (1): Stagflation

Industrial production and business confidence

Sources: National sources, Euler Hermes

Monetary policy tightening to fight inflation…

Inflation and key rate

2.0%

4.5%

7.0%

9.5%

12.0%

14.5%

07 08 09 10 11 12 13 14 15

Key rate (SELIC)

Inflation rate (y/y)

Central Bank inflation target: 4.5% +/-2pps

7.0

8.0

9.0

10.0

11.0

12.0

13.0

-20

-15

-10

-5

0

5

10

15

20

06 07 08 09 10 11 12 13 14 15

Industrial

production

(y/y,%)

Business

confidence

(100=2006)

21

26%

27%

28%

29%

30%

31%

32%

12 13 14 15

Capital intensive sectors (Automotive,

Machinery) take the largest hit because of

difficult funding


Brazil (2): A tough year ahead for companies

Sector risk distribution in Brazil


2015 insolvencies forecast revised to +11%

(vs. 9% previously) due to tightening access

to financing

Credit to non-financial corporations

(% of GDP)

22

Agenda


2 Americas

3 Europe


5 Asia Pacific

23

UK: Consumers will continue to drive growth

The lower oil prices and the private

consumption recovery hasn’t transmitted

into companies’ profitability

Sources: IHS, ONS, Euler Hermes

Firms’ turnovers and profitability

The labour market recovery will continue

to support private consumption growth

Consumer spending and unemployment


5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

08 09 10 11 12 13 14 15 16

Consumer spending, 4Q/4Q, L

Unemployment rate, R, inverted scale

24

UK: No country is an island

Strong FDI flows and a weakening current

account emphasis UK’s inter-connected place in

the world (58% of 2013’s FDI from Europe)

FDI and Current Account Balance

…while total investment has slowed due to

election uncertainty

GDP and Investment growth

Sources: IHS, ONS, Euler Hermes Sources: IHS, ONS, Euler Hermes

25

Switzerland: The unforeseen shift, Swiss

companies to take the largest hit

Jan 15, 2015: SNB removed exchange rate

floor of EUR1:CHF1.20…Insolvencies

forecast for 2015 revised from -3% to +5%

CHF/EUR and CHF/USD


CHF becomes even less affordable, export

and domestic focused sectors bear the cost

Sector risk distribution in Switzerland


0.4

0.6

0.8

1

1.2

1.4

1.6

10 11 12 13 14 15

CHF per EUR

CHF per USD

26

Eurozone: Out of the woods?

The recovery is expected to gather pace

(+1.3% in 2015 and +1.6% in 2016)

+2.5%

+2.3%

+1.3%

+1.5% +0.4%

+0.9%

+0.2%

+1.5%

+1.0%

+1.4%

+1.7%

+1.6%

+3.7%

+3.5%

Source: Euler Hermes (Short-term country risk rating as of March 2015)

+0.9%

+1.4%

+1.2%

+1.5%

+1.3%

+1.6%

Selected economies: Real GDP growth

forecasts, 2015-16

Improving financial conditions suggesting

upside potential for eurozone GDP growth

Eurozone: Financial conditions vs GDP growth

NB: The Financial Conditions Index tracks the overall level of financial stress in

the euro area money, bond and equity markets to help to assess the availability

and cost of credit. A positive value indicates accommodative financial conditions.

Sources: Bloomberg, Eurostat, Euler Hermes

27

Eurozone: Consumers are slowly coming back

Retail sales are finally in a recovery mood…

Retail sales (3 month average, y/y)

…thanks to improving consumer confidence

(although still at very depressed levels)

Consumer confidence (balance, %)

Sources: Eurostat, Euler Hermes Sources: IHS, Euler Hermes

-13

-11

-9

-7

-5

-3

-1

1

3

5

10 11 12 13 14 15

Italy

Germany

France

Spain

Netherlands -60

-50

-40

-30

-20

-10

0

10

20

10 11 12 13 14 15

Germany France

Italy Spain

Netherlands

28

Eurozone: Waiting for a recovery in investment

Investment has been the primary adjustment

variable since 2008…

Investment in Construction and Equipment,

variation since Q3 2008

…leading to falling trend growth rates. The

pick-up in GDP and investment growth should

now go hand-in-hand…but how far?

Trend* Real GDP Growth, % yoy

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

France Germany

Italy Spain

Netherlands Belgium

Finland Portugal

Forecasts

France

Germany

Italy

Spain

Netherlands

Belgium

Finland

Portugal

Ireland

-50%

-40%

-30%

-20%

-10%

0%

10%

-80% -60% -40% -20% 0% 20% 40%

Co

nstr

ucti

on

Equipment

A cumulative

investment

deficit of

(at least)

EUR210bn

Sources: IHS, Euler Hermes Sources: IHS, Euler Hermes

*) Computed via an HP filter on quarterly data

29

+3.4

Jan-Mar retail sales

y/y %

Germany: Feeling cautiously optimistic

Activity is only showing a modest recovery Retail sales leap to their highest growth rate

since 2010 but this is capturing the

substitution effect of oil

Retail sales and consumer spending


Consument sentiment and Business

expectations

Poland is riding

on Germany’s

coat-tails: it

benefits from the

dynamism of

German

automotive sector

30

75

80

85

90

95

100

105

110

08 09 10 11 12 13 14 15

Household confidence

Confidence 15Y Average

Retail sales

France: Feeling better but why?

Household confidence has shot up over the

past 3 months and spending is indeed

picking up…

…similarly business confidence is improving

but activity is still weak

Business confidence and IP (Jan 2008=100)


Household confidence and Retail sales

60

70

80

90

100

110

120

130

05 06 07 08 09 10 11 12 13 14 15

Business confidence in the manufacturing sector

Industrial production

31

Italy: One half of the recovery has begun


Business activity appears to have turned

the corner…

GDP growth vs. Manufacturing PMI Industrial production vs retail sales (y/y, %)

…but domestic demand remains in

contraction for the fourth consecutive year


-4%

-3%

-2%

-1%

0%

1%

2%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

08 09 10 11 12 13 14 15

Industrial production (y/y, lhs)

Retail sales (% yearly average growth, rhs)

-6

-5

-4

-3

-2

-1

0

1

2

3

30

35

40

45

50

55

60

06 07 08 09 10 11 12 13 14

GDP growth (q/q growth)

PMI Manufacturing

32

Spain: The export Cinderella story


Spain export share in the eurozone grew by

0.8pp since 2007 (vs +0.3pp for Germany)

Exports, share in total eurozone countries


Finally starting to bear fruit: Spanish firms

show better financial health, from a low base

Sector risk distribution in Spain

33

Portugal (1): The challenge of stabilizing the

economy was achieved

Portugal: retail sales and consumer

confidence

After 6 years of recession, Portugal

renewed with positive growth in 2014,

driven by domestic demand

Sources: national sources, Euler Hermes

Fiscal targets are being achieved,

recovering investor confidence and allowing

Portugal to go back to capital markets

10Y Bond yield


0%

2%

4%

6%

8%

10%

12%

14%

16%

07 08 09 10 11 12 13 14 15

Portugal

Spain

US T-Bond

-60

-40

-20

0

20

-15%

-10%

-5%

0%

5%

07 08 09 10 11 12 13 14 15

Retail sales growth (y/y)

Consumer confidence

Real GDP growth:

2015: +1.3%

2016: +1.5%

34

Portugal (2): But challenges persist for

corporations

NFC profit share and investment

Profitability has increased, but

investment remains on a downward

trend…


Caused by persistent lack of credit.

Credit to NFC (12m/12m, %)


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

07 08 09 10 11 12 13 14

Gross profit share

Gross investment rate

-15%

-10%

-5%

0%

5%

10%

15%

07 08 09 10 11 12 13 14 15

35

Portugal (3): In a longer-term, increase growth

potential will be key for the deleveraging process

NFC profit share and investment

Long-term growth remains weak.

Improving productivity and

competitiveness will be key…


…to help in the deleveraging process

Public debt (% of GDP)


-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

05 06 07 08 09 10 11 12 13 14 15 16

Spain

Ireland

Greece

Portugal

forecasts

40

50

60

70

80

90

100

110

120

130

140

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

36

Portugal (4): Exports are also an engine of the

recovery

Trade of goods and services

Export are benefitting from the lower

euro…


Shifting export from traditional partners

towards extra-eurozone destinations

Portuguese exports by country

(EUR bn, over 12 months)


40

45

50

55

60

65

70

75

80

07 08 09 10 11 12 13 14 15

Imports

Exports

0

2

4

6

8

10

12

09 10 11 12 13 14 15

France

Spain

United Kingdom

Germany

US

37

Greece: At half time, waiting for the final

Three scenarios: (1) a 4-6 month bailout

extension followed by a program (60%); (2) a

program + further debt relief (35%); (3) Grexit (5%)

Key dates for Greece

Greek financing through T-Bills has become

expensive

Greek sovereign bill/bond yields by maturity

(Update for April 2015), %

Sources: Bloomberg, Euler Hermes Sources: Bloomberg, Euler Hermes

38

Annual levels of insolvencies

(basis 100=2000)


Insolvencies in Western Europe: Turning

point… not for everybody (yet)

Group#1: Still a high level of

insolvencies but obviously less

distressed than 2 years ago

Group#2: Countries

struggling to decrease (or

even stabilize) insolvencies

Group#3: Countries already

back to a low level of

insolvencies



(basis 100=2000)


(basis 100=2000)

39

Central and Eastern Europe: Resilience to the

Russian crisis for some

CEE countries expected to show resilience

to the Russian crisis as they benefit from

the eurozone recovery…

GDP growth, %


…as suggested by the pick-up in

confidence, still needed to be confirmed by

activity in the coming months

Economic Sentiment


40

Tra

de w

ith W

este

rn E

uro

pe (

% o

f to

tal tr

ade)

Trade with Russia (% of total trade)

Central and Eastern Europe: At-risk for

spillovers for others

Armenia, Moldova, Belarus, Lithuania, Kazakhstan, Montenegro…are in the grey zone

Sources: IHS Global Insight, Euler Hermes Sources: IHS Global Insight, Euler Hermes

Trade with Russia vs Western Europe Investment flows (inflows & outflows) with Russia

vs Eurozone

41

20

30

40

50

60

70

800

10

20

30

40

50

60

70

80

90

100

110

120

130

140

01-14 03-14 05-14 07-14 09-14 11-14 01-15 03-15

Brent (USD/barrel; LHS)

USD:RUB (RHS)

-140

-100

-60

-20

20

60

2004 2006 2008 2010 2012 2014

18 March

Crimean

annexation

Russia (1): Not one but four crises (politics,

confidence, oil revenues and balance of payment)

… and political woes were compounded by oil

price decline. Rough stabilisation at much

lower level in 2015 so far ...

Source: Bloomberg, Euler Hermes

USDRUB and Brent first contract price

July 31st:

Phase 3 of

sanctions

August 7th:

Russian

counter-

sanctions

Self-

fulfilling

crisis

Exchange

rate crisis

March-May

Phase 1&2

of sanctions

October

Saudi Increases

Oil Production

Investor confidence has dropped sharply in

2014 following the Ukraine crisis…

Net capital inflows/outflows by the Russian

private sector (USD bn)

Ukra

ine

Source: Central Bank of Russia, Euler Hermes

42

Russia (2): Default or no default? - External

liquidity still not a problem in the short term

FX reserves have rapidly declined in 2014 due to capital flight and central bank FX market

intervention to stabilise RUB but are still large (~9 months import cover). Less FX intervention

and sharp drop in imports in 2015 will stabilise the import cover ratio

Foreign exchange reserves in relation to

ST debt (on a maturing basis) and imports

Source: IMF, Central Bank of Russia, Euler Hermes Source: National sources, IHS, Euler Hermes

Foreign exchange reserves (USD bn)

and import cover (months)

0

5

10

15

20

25

0

100

200

300

400

500

600

700

05 06 07 08 09 10 11 12 13 14 15

FX reserves (excluding gold)

Import coverforecast

0%

100%

200%

300%

400%

500%

600%

0

5

10

15

20

25

Ch

ina

Bra

zil

Ru

ssia

Ind

ia

S.

Afr

ica

Hu

nga

ry

Ro

man

ia

Tu

rke

y

Po

lan

d

Ukra

ine

Import cover (months; lhs)

Coverage of external debtmaturing within 1 year (%; rhs)

43

Mild recession:

• GDP growth: -1.0% in 2015

• Insolvencies: +10% in 2015

• USD20bn impact from

sanctions, falling consumption

and investment

Capital and FX controls:

• None

Sovereign default:

• Not in 2015: reserves remain

comfortable as the access to

international financial markets

Back to ‘Normal’

(5%)

Severe recession :

• GDP growth: -5.5% in 2015

(and -4% in 2016)


• USD60bn impact from drop in

consumption/imports

• Triggers: Oil price +

ineffective policies


• Controls on investment flows

(à la Malaysia / Iceland)

• Forced RUB buying by

companies; Introduction of

second currency (IOUs)

Sovereign default:

• Not in 2015: reserves are

higher than in 1998

Balance-of-payments crisis

(70%)

Economic collapse:

• GDP growth: -15% in 2015


• Triggers: escalation of

sanctions (e.g. SWIFT

payment) or full-fledged

capital controls or very low oil

prices for sustained period


• Intensified FX and capital

controls

• Additional controls on the

current account (especially

trade flows)

Sovereign default:

• Possible in 2016. Western

Banks (AT, NL, FR, IT, DE,

UK) face important defaults

Iran or Argentina-style

(25%)

D4 C4 C3

Russia (3): Current scenario

44

Russia (4): Transmission to industry risks in and

around Russia

Latvian sectors are exposed to RUB

depreciation and plummeting Russian demand


Sector risk distribution in Latvia

In Russia, non-payments surged +158% in

2014, no sector being spared

Sector risk distribution in Russia


45

Insolvencies in Central and Eastern Europe:

Between Russian crisis and domestic constraints!

Russia: insolvencies to

surge by +30% in 2015

(central scenario)

Insolvencies to remain at a high level in the majority of

countries (our regional index to jump by +15% in 2015)



(basis 100=2000)



(basis 100=2000)


(basis 100=2000)

46

Turkey: Monetary policy fine-tuning will be

essential in 2015

Sources: National sources, IMF, IHS, Euler Hermes

Monetary policy, inflation and exchange rate

GDP growth (%) and contributions (pps)

GDP growth to pick up only slightly to +3.2%

in 2015 (from +2.9% in 2014). Positive impact

from lower oil prices largely countervailed ...

... by too rapid monetary easing which has

put TRY under pressure and undermines

disinflation and domestic demand


1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

2.60

2.80

3.00

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015

inflation (% y/y; lhs)

monetary policy rate (%; lhs)

TRY/USD exchange rate (rhs)

0.1

-2.9

0.10.6

4.5

-0.1

1.9

-0.1

-2.6

1.8

-0.4

-0.5

0.8

-0.3

0.4

0.9

0.9

0.7

0.8

-0.3

3.5

0.9

1.5

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2012 2013 2014 2015

ConsumerSpending

PublicSpending

Investment

Stocks

Exports

Imports

GDP

+3.2+2.9+4.1+2.1

47

Agenda

1 Growth, Insolvencies, Sector Risks and Boosters

2 Americas

3 Europe


5 Asia Pacific

48

The impact of weaker oil prices is not

as simple as “bad” for oil exporters

and “good” for oil importers.

Middle East & North Africa: Once a blessing, now

a curse?

Growth in major oil/gas producers will slow in 2015 •The negative impact of lower oil prices will be muted by public spending (large financial assets). Subject to progress in international relations, growth in Iran could pick up, despite lower oil prices.

For net oil importers and more diversified economies, the impact of lower oil prices is muted by potential for disruptions to intra-regional flows (from the big oil exporters) of: •Investment •Tourism •Trade •Workers' remittances

Some countries in political transition (Egypt and Tunisia) could see higher growth but this is because of a bounce back, rather than oil price effect.

Overall, the Middle East & North Africa region

is unlikely to surpass its long-term average

rate of growth (+4.6%) in either 2015 or 2016.

GDP Growth (%)


49

Oil exporters will see slower growth

but the importers have a mixed

experience

Sub-Saharan Africa: Many to benefit, few to

suffer

Growth in major oil and gas producers is set to slow in 2015 •But this is partly because of economic imbalances (Angola) or political/stability factors (Sudan) or both (Nigeria)

Similarly, net oil importers should get a boost •But some have economic imbalances (Ghana) and some have structural impediments to higher growth (South Africa).

The region will still include some of the world’s fastest growing economies. It is a question of cherry-picking the most successful (some are listed).

Overall, Sub-Saharan Africa is unlikely

to surpass its long-term average rate

of growth (+4.5%) until 2016

GDP Growth (%)


50

Agenda

1 Growth, Insolvencies, Sector Risks and Boosters

2 Americas

3 Europe


5 Asia Pacific

51

APAC economic outlook: coping with “New

Norms”


GDP to post solid growth over 2015 - 2016

2013 2014e 2015f 2016f

China 7.7 7.4 7.1 7.0

Japan 1.6 -0.1 1.0 1.5

India 6.9 7.5 7.7 7.8

Australia 2.1 2.7 2.6 2.9

South Korea 2.9 3.3 3.0 3.5

Singapore 4.4 2.9 3.0 3.4

Indonesia 5.8 5.0 5.0 5.4

Malaysia 4.7 6.0 4.8 5.0

Thailand 2.9 0.7 2.5 3.0

Philippines 7.2 6.1 6.3 6.0

Moderate demand growth

Low price environment

Volatile financing conditions

New Norms

52

China: Welcome to the “New Normal”

And downward price pressures remain

evident especially in industry


Price indicators

Economic activity continued to disappoint in

Q1

GDP figures


-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

09 10 11 12 13 14 15

Producer price index (y/y)

Consumer price index (y/y)

6

7

8

5

6

7

8

9

10

11

12

13

14

15

13 14 15

Retail sales (lhs)

Industrial production (lhs)

GDP growth (rhs)

53

China: Welcome to the “New Normal” !

… and further policy support


Monetary policy

Resilience is expected to come from non

‘traditional’ sources of growth…


• Consumer confidence is improving

• Income growth is still strong

Private consumption

• High Tech industries and e-commerce showed positive development in Q1

• Services which represents 48% GDP remains resilient

New sectors

• Establishment of a deposit insurance system to be set in Q2

• Deposit rate liberalization process

Financial liberalization

Sources of growth

14

15

16

17

18

19

20

21

22

5.0

5.5

6.0

6.5

7.0

7.5

8.0

08 09 10 11 12 13 14 15

Policy rate (lhs)

Required Reserve Ratio (for big banks; rhs)

54

India: The BRIC bright spot?

Advanced indicators suggest a moderate

acceleration in the short run


Industrial production

Macroeconomic imbalances have been

reduced


Current account and government

balance (% GDP)

48

50

52

54

56

-4

-2

0

2

4

6

8

10

12

13 14 15

Industrial production (lhs; y/y)Confidence in the industry (rhs)

-10

-8

-6

-4

-2

0

2

4

01 03 05 07 09 11 13 15

Current Account Balance

Central government budget balance

55

45

50

55

60

-10%

-8%

-6%

-4%

-2%

0%

2%

12 13 14 15

Exports (lhs; 12m/12m)

Business confidence in the industry (rhs)

Japan: A stimulus led recovery (again!)

Activity recovered from recession but

remain very fragile

Sources: IHS Global Insight, Markit, Euler Hermes

Activity indicators

Lower inflation and credit figures suggest

that the BOJ will ease further

Sources: IHS Global Insight, Euler Hermes

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

12 13 14

Credit to private sector (y/y)

Inflation

Credit and inflation

56

ASEAN: Risks are tilted to the downside for

Malaysia and Indonesia

3 potential brakes for growth: slowing demand from China, lower commodity prices and

higher currency risk

Exports to China (% total

exports)

Sources: IHS, World Bank, Euler Hermes

Lower commodity prices

(100 = 2005) Currency (100=01/2013)

70

75

80

85

90

95

100

105

13 14 15

Singapore Indonesia Malaysia

Philippines Thailand

0

50

100

150

200

250

300

03 05 07 09 11 13 15

Commodity prices

Energy prices

Non-energy prices

0 5 10 15

Philippines

Vietnam

Singapore

Malaysia

Thailand

Indonesia

2014 2000

57

Malaysia: economy to prove resilient thanks to

financial and economic buffers

* In month of goods imports


External risks are contained as current

account surplus and reserves can

support the currency

Import cover and current account

The economy has build solid buffer

through diversification of growth

drivers

0%

5%

10%

15%

20%

0

2

4

6

8

10

12

01 03 05 07 09 11 13 15

Import cover (lhs)*

Current account (% GDP, rhs)

GDP components (100 = 2000)


90

110

130

150

170

190

210

230

250

00 02 04 06 08 10 12 14

Agriculture

Mining

Manufacturing

Construction

Services

58

Indonesia: domestic demand will act as a

cushion


Businesses remain positive and

domestic investment will be a key driver

for growth

Business survey

Households fundamentals remain

strong with rising wages and slowing

inflationary pressures

Wages and inflation


0%

5%

10%

15%

20%

25%

10 11 12 13 14 15

Average monthly wages inmanufacturing

Inflation

59

Thank you for your

attention! Economic Research Department

Euler Hermes Group

1 place des Saisons

92048 Paris La Défense Cedex

France

Phone +33 01 84 11 50 50

[email protected]

http://www.eulerhermes.com/economic-

research

This material is published by Euler Hermes SA, a Company of Allianz, for information purposes only and should not be regarded as providing any specific advice. This publication and its

contains are proprietary to Euler Hermes SA. Euler Hermes and Euler Hermes’ logo are trademarks or registered trademarks belonging to Euler Hermes Group, Worldwide Recipients should

make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not

intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by Euler Hermes and Euler

Hermes makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for

any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the Euler

Hermes Economics Department, as of this date and are subject to change without notice. The classification of this document is PUBLIC. Euler Hermes SA. Registered in Nanterre

(552 040 594).Euler Hermes SA is authorized and regulated by the Financial Markets Authority of France. © Copyright 2015 Euler Hermes. All rights reserved

darwinism 2.0: navigating the global mess · 2018-04-04 · strong. •supported by a labor market...

Documents