GLOBAL ECONOMIC OUTLOOK:

POLITICAL RISKS AND THE INDUSTRY

CYCLE CAN BOTH BE BLAMED FOR

THE DOWNTURN

JULIEN MARCILLY

CHIEF ECONOMIST

To change the image:

• Right click on the slide

• Click “Format background”

• Choose your image (Size: 1400x1050px)

2

MORE BUSINESS INSOLVENCIES IN 2019, BUT FROM A LOW STARTING POINT

Business insolvencies:

Coface 2019 growth forecast

Source: Coface

-16%

-9%-7% -6% -6%

-3% -3% -2% -2% -1% -1%

0% 0% 0%2% 2% 2% 3% 3% 3% 4% 4% 4% 5% 5% 5% 5% 6% 6% 6% 6% 7% 7% 8% 8% 9% 9% 9% 9%

12%

-2%

2%

-1%

3%4%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

So

uth

Ko

rea

Fin

lan

d

Bra

zil

NZ

Ice

lan

d

Neth

erl

an

ds

Sin

gap

ore

So

uth

Afr

ica

US

A

Serb

ia

Belg

ium

Can

ad

a

Jap

an

No

rwa

y

Fra

nce

Germ

an

y

Ru

ss

ia

Latv

ia

Ukra

ine

Den

mark

Po

rtu

gal

Sp

ain

Czech

Rep

Slo

va

kia

Bu

lgari

a

Po

lan

d

Taiw

an

Cro

ati

a

Ho

ng

Ko

ng

Ro

man

ia

Slo

ve

nia

Italy

Sw

ed

en

UK

Esto

nia

Hu

ng

ary

Lit

hu

an

ia

Au

str

alia

Po

lan

d

Tu

rkey

No

rth

Am

eri

ca

Eu

ro z

on

e

As

ia P

ac

ific

We

st.

Eu

rop

e

CE

E

2018

2019 (f)

INDUSTRY IN THE EUROZONE: THE END OF A VERY LONG EXPANSION CYCLE

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 3

Euro Area: Industrial Production (3 month moving average, year-over-year change in percent)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

growth period industrial production

60 months22

months56

months

27 months

30months

25months

Source: Eurostat, Datastream, Coface

COFACE SECTOR ASSESSMENTS IN WESTERN EUROPE

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 4

Low Risk

Medium Risk

High Risk

Very High Risk

Upgrade

Downgrade

Business Default Risk

COFACE. THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 5

UK: POLITICAL UNCERTAINTIES STILL AFFECT BUSINESSES

19,485

17,709

16,293

14,58814,716 14,631

16,090

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

2012 2013 2014 2015 2016 2017 2018

Company insolvencies

Underlying company insolvencies

Growth (rhs)

Source: Insolvency Service's National Statistics

-2%

1%

9%

12%

18%

24%

10%

-5% 0% 5% 10% 15% 20% 25% 30%

Manufacturing

ICT

Retail trade

Construction

Food services

Personal services (excl. foodservices)

Total insolvencies

Growth in insolvencies in 2018

Source: Insolvency Service's National Statistics

POLITICAL RISKS: STILL THE SAME VICIOUS CIRCLE

Unemployment,

perceived inequalities

and corruption

« Weak » institutions

Abstention, protesting

votes, rise of

« Strong » leaders

Bad economic policies,

lack of structural reforms

Weak economic

growth

Group Economic Research Department 7

POLITICAL RISK IN EUROPE: MEASUREMENT VERSUS PERCEPTION

8

POLITICAL RISK: MEASUREMENT VERSUS PERCEPTION

Group Economic Research Department 9

DIFFERENT EXPECTATIONS ON THE EU’S ROLE, BUT STRONG SUPPORT FOR THE EURO

Euro is a "good thing" for my country

(% of respondents)

Which would best describe the ideal future of the EU?

(most mentioned answer by country, %)

0

10

20

30

40

50

60

70

80

90

100

Gre

ec

eP

ort

ug

al

Lit

hu

an

iaS

lova

kia

Bu

lgari

aC

roati

aS

love

nia

Czech

iaH

un

gary

Latv

iaC

yp

rus

Sp

ain

Po

lan

dE

sto

nia

Ro

man

iaM

alt

aE

U28

Belg

ium

Germ

an

yIt

aly

Au

str

iaF

inla

nd

Irla

nd

eL

ux.

Neth

er.

UK

Fra

nce

Sw

ed

en

Den

mark

Equal wage for the same job accross the EUA high level of security within the EUA minimum level of guarenteed healthcare in all countriesA guarenteed minimum pension across the EUFair and equal access to edcuation for all across the EUGender equality established everywhere in the EUIncreased use of renewable energies within the EU

Source: Eurobarometer Source: Eurobarometer

64

40

45

50

55

60

65

70

200

2

200

3

2004

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

2013

201

4

201

5

201

6

201

7

201

8

THE U.S. VERSUS CHINA: FROM GEOPOLITICAL RISKS TO ECONOMIC POLICIES

Exchange rate policy

(by using monetary

policy)

Trade policy

Fiscal policy

(corporate taxes)

Geopolitical

and strategic

oppositions

Strong

economic and

financial links

11

US-CHINA TRADE WAR: PAY ATTENTION TO INDIRECT EFFECTS ON EUROPEAN BUSINESSES

Elasticity of Domestic Value Added (DVA) Exports

of Country X in relation to US tariffs on EU 15, the DVA receiver

Source: Coface

-0,4

-0,7

-4,3

-3,4

-1,2

-5

-4,5

-4

-3,5

-3

-2,5

-2

-1,5

-1

-0,5

0

0,5

To

tal

Ma

nu

fac

turi

ng

Ma

ch

ine

ry

Tra

ns

po

rt e

qu

ip.

Ch

em

icals

Min

ing

Wo

od

, p

ap

er

Ele

ctr

on

ica

l e

qu

ip.

Fo

od

pro

du

cts

Me

tals

Tex

tile

Ag

ric

ult

ure

Statistically not significant Statistically significant (at 5%)

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 12

EMERGING MARKETS – RISK #1: RISING CORPORATE CREDIT RISK IN CHINA

China: Coface Corporate Payment Survey

(credit terms, number of days)

Source: Coface

60

55

5957 56

68

76

86

40

60

80

100

2011 2012 2013 2014 2015 2016 2017 2018

EMERGING MARKETS – RISK #2: CAPITAL FLOWS AND EMERGING MARKETS, THE SAME USUAL SUSPECTS

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 13

-30

-20

-10

0

10

20

30

40

50

60

70

01/0

1/15

01/0

1/16

01/0

1/17

01/0

1/18

01/0

1/19

Net non-resident purchases of EM stocks and bonds (in

USD bn, source: IIF) Local currency versus USD

(YTD in %, 17 May 2019, source: Reuters)

-15,9%

-12,5%

-6,5%

-4,1%

-2,9%

-0,8%

-0,5%

-0,1%

0,5%

2,1%

2,7%

5,0%

5,1%

7,9%

-25% -15% -5% 5% 15%

Argentina

Turkey

Korea

Brazil

Poland

India

Indonesia

Chile

South Africa

Thailand

Mexico

Egypt

Ukraine

Russia

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 14

EMERGING MARKETS – RISK #3: VOLATILE OIL PRICES

157%

118%

9%

261%

114%

57%

154%

64%

125%

Angola Kuwait Nigeria SaudiArabia

UAE Russia OPEC Non-OPEC10

Total

Compliance to 2019 output deal(in % of pledged cut)

Source: OPEC, IEA, Coface

0,0

0,5

1,0

1,5

2,0

2,5

3,0

Mb/

d

OPEC: Unplanned production outages

Source: EIA

71,62

63,76

40

45

50

55

60

65

70

75

80

85

90

Jan-

18

Feb-

18

Mar

-18

Apr

-18

May

-18

Jun-

18

Jul-1

8

Aug

-18

Sep

-18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19

Mar

-19

Apr

-19

USD

Brent & WTI Oil Prices

Brent WTI

Source: Datastream

Last data point: 17/04/2019

COFACE, THE MOST AGILE GLOBAL TRADE CREDIT PARTNER IN THE INDUSTRY 15

EMERGING MARKETS – RISK #4: A NUMBER OF HOT POLITICAL SPOTS IN 2019, ESPECIALLY IN AFRICA

Africa: Coface Social Risk Index in 2018

Sources: Coface, ACLED

16

COFACE COUNTRY ASSESSMENTS