Transcript Examples for the design of charts

Global Economic
Outlook and Fears:
The Eurozone
Uncertainty
Ludovic Subran
Chief Economist and Director of the
Economic Research Department
Fort Lauderdale, ICTF Symposium
November 13, 2012
From Europe with love: First-round effects already a reality
The unfolding financial repression…
 Extremely low central bank rates and bond
yields
… is stressing five transmission
channels
1.
Low interest rates and widening spreads
(problematic for guarantees, solvency and
encourages more risk-taking potentially)
2.
Inflation (impact on reserves and portfolio
valuations) and No Growth (low premium
volumes)
3.
Fiscal tightening (first order and second
order impacts, deflationary pressures)
4.
Regulation (more and more, penal to
profitability, solvency and growth)
5.
Private deleveraging (bad debts, tighter
credit, growth) and de-risking (potential to
miss growth in other riskier markets, reduces
liquidity)
 Central bank purchases of
government bonds
 Pension asset transfers to governments and
changes in investment policy pro sovereigns
 Restrictions on foreign capital movements
 Political pressure on banks to purchase
government bonds
 Exertion of influence on state-owned banks
 Repression-friendly regulatory measures:
Basel III, Solvency II
© Copyright Euler Hermes
2
Two major
secondround
effects
Beyond low bond yields and financial stress, the euro debt crisis is
hampering economic growth for a prolonged period of time (0.1 pp of
GDP ‘lost’ every other month in Europe, leading to 0.1 pp world-wide),
and stress-testing the private sector; the resilience of these two risk
dimensions is part of the monitoring undertaken by Euler Hermes
#1
Almost no growth in Europe till 2014, ineffective economic
policies, and negative impacts onto the rest of the world… as
long as the institutional gap is not bridged
#2
Too much time saving time: the industrial fabric is now at-stake
with rebounding insolvencies and the agony of some key
economic sectors
© Copyright Euler Hermes
3
No growth in Europe in 2013: banking too much on the
emerging world?
A 3-tier dynamic with growing spreads
into 2013
World activity and trade not to recover
pre-crisis tempo
Forecasts
2010
2011
2012
2013
100,0
4,3%
3,0%
2,5%
2,8%
OECD
61,8
2,6%
1,3%
1,2%
1,3%
USA
Weights (%) *
World GDP
22,5
2,4%
1,8%
2,2%
2,0%
Canada
2,6
3,2%
2,4%
2,0%
2,2%
Japan
8,8
4,6%
-0,7%
2,2%
1,1%
19,5
2,0%
1,5%
-0,5%
0,4%
Germany
5,3
4,0%
3,1%
0,8%
1,1%
France
4,1
1,6%
1,7%
0,1%
0,3%
Italy
3,3
1,8%
0,5%
-2,3%
-0,7%
Spain
Euro zone
2,2
-0,3%
0,4%
-1,8%
-1,2%
UK
3,6
1,8%
0,8%
-0,4%
1,1%
Sweden
0,8
6,3%
3,9%
0,9%
1,4%
Switzerland
0,9
3,0%
1,9%
1,0%
1,3%
non OECD
38,2
7,3%
5,8%
4,6%
5,2%
7,0
4,5%
4,6%
2,6%
3,1%
Central and Eastern Europe
Russia
2,8
4,3%
4,3%
3,8%
4,0%
20,4
9,1%
7,2%
6,1%
6,6%
China
10,9
10,4%
9,2%
7,6%
8,1%
India
2,8
8,5%
6,5%
6,5%
7,0%
8,3
6,2%
4,2%
2,9%
3,7%
3,7
7,5%
2,7%
1,7%
3,6%
2,6
4,7%
3,4%
4,1%
4,2%
13,7%
5,9%
3,8%
5,1%
Asia (excluding Japan)
Latin America
Brazil
Middle East and Africa
World trade
Sources: IHS Global Insight, Euler Hermes
(*) GDP 2011 weighting at 2011 exchange rates
GDP and trade
(yr/yr growth, in % and real terms)
4%
3%
15%
10%
2%
5%
1%
0%
0%
-5%
-1%
OECD GDP (r)
-10%
-2%
non-OECD GDP (r)
world trade (l)
-3%
-15%
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Forecasts
Sources: IHS Global Insight, Euler Hermes
© Copyright Euler Hermes
4
A coherent heterogeneity?
USA: limited growth in 2013 subject to revision(s) depending on solutions to the fiscal
cliff conundrum
Europe: at a crossroads
 The eurozone situation is worsening, in spite of subdued financial stress. At stake: major economies
(Germany and France) stopped growing, and the industrial fabric is threatened
PIIGS: Italy on a bumpy road to recovery; Spain likely to ask for EFSF support; Greece’s exit still on
the table
The UK economy affected by a major demand shock. Will the Olympics effect kick in end-2012?
Any good news?
Japan and the ‘Scandies’ on a better path
The emerging world – which represents more than 38% of World GDP (+2.6 pp in 2011) – will grow
less fast than initially anticipated (eurozone effect) but will prove their resilience
The bad news: global insolvency is expected to increase by +4% in 2012, and +3% in
2013, driven by rise in counterparty risk in Europe
© Copyright Euler Hermes
5
Competitive adjustments have just started… and the speed
required may jeopardize structural growth in Europe
Consolidation is on track but the effort for eurozone economies is massive
Fiscal balances
10
(% of GDP)
General government balance
-9%
5
(% GDP)
Consolidation
-8%
Advanced economies
-7%
Emerging markets
-5
-6%
Fiscal stimulus
-5%
0
-10
-4%
-15
-3%
-20
-2%
-1%
-25
0%
Germany
Italy
France
Portugal
Spain
Ireland
Greece
-30
1%
04
05
06
07
Sources: Global Insight, Euler Hermes
08
09
10
11
Forecasts
-35
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: Global Insight, Euler Hermes
© Copyright Euler Hermes
6
Next thing: Monetary disorders?
(i) Key rates at record low; and (ii) inflation pressure remains
Monetary Policy rates
Inflation rates
14%
12%
10%
01-2007
9%
Min reached since Q1 2007
8%
7%
08-2012
World
United States
Eurozone
BRIC
6%
5%
8%
4%
Conventional monetary
policy ineffective
6%
3%
2%
4%
1%
2%
0%
-1%
us
si
a
R
il
Br
az
a
hi
n
C
ia
In
d
Ja
pa
n
e
ro
zo
n
00
02
04
06
08
10
12
ni
te
d
eu
-2%
U
U
ni
te
d
Ki
n
gd
St
a
te
s
om
0%
Sources: Global Insight, Euler Hermes
Sources: Global Insight, Euler Hermes
© Copyright Euler Hermes
7
Eurozone scenarios continue to depend on institutions
Probability
“Evolution”
“Leap into fiscal union”
 Closer fiscal and economic
coordination with limited
pooling of liabilities and a
rudimentary banking union
 Significant transfer of
sovereignty rights to the EU
 Monetary policy ultra-loose
in 2012 and 2013, OMT
 Ongoing deleveraging and
fiscal consolidation in
periphery with deflationary
impact
 Overall: Unstable equilibrium
between inflationary and
deflationary forces
 Fiscal union with powers of
intervention, EMU finance
minister
 Extensive pooling of debt:
introduction of Eurobonds
(e.g. debt redemption bonds)
 Complete banking union
 Possible triggers: new
financial market turmoil (in
spite of OMT) and sharp
recession in the EMU
“Eurozone break-up”
 Default and exit of several
countries (rump core
monetary union with small
number of countries could
remain)
 Likely consequence: Global
and financial market crisis
at least on the scale of
Lehman crisis
 Steep appreciation of core
euro
 Extremely low yields for a
number of years
 Deflationary trends gain the
upper hand in Europe for
several years
© Copyright Euler Hermes
8
Euro scenarios: Necessary conditions for rising inflation
within the next three years
 Successfully completed consolidation and deleveraging process
 Strong economic upswing and higher capacity utilization
 Tight labor market and substantially rising wages
 Policy errors of ECB - loss of independence
 Credit multiplier works again -> regained effectiveness of monetary
transmission
 Inflationary expectations decoupled from macroeconomic activity
© Copyright Euler Hermes
9
Euro temporarily lower
USD/EUR
EUR, nominal effective exchange rate
against 20 major trading partners, 1999Q1 = 100
appreciation
depreciation
Source: EcoWin.
© Copyright Euler Hermes
10
Current account changes reflect absorption trends but the impact
on the output gap of too much and too fast austerity will last
Change in domestic demand and current account balance, 2008-2012
10
LUX
AUT
Cumulative change in domestic demand
between 2008 and 2012 (%)
5
DEU
FIN
FRA
0
BEL
NLD
-5
SVK
ITA
-10
ESP
SVN
PRT
-15
-20
IRL
GRC
-25
-30
-4
-2
0
2
4
6
8
10
Change in current account balance between 2008 and 2012 (% of BIP)
Source: Eurostat.
© Copyright Euler Hermes
11
The German model: replicable?
With its trade surplus
10
With its more competitive economy
With its fiscal surplus
Balance of goods and services
Unit labor costs
Fiscal balances
(% of GDP)
(Index basis 100=2000)
(% of GDP)
France
Germany
Greece
Italy
Portugal
Spain
Forecasts
145
140
Eurozone
Germany
10
5
Ireland
5
135
130
0
125
Greece
Spain
-5
Italy
Portugal
-5
0
120
France
115
Forecasts
-10
-15
-20
110
-10
-25
105
-15
00 01 02 03 04 05 06 07 08 09 10 11 12
100
-30
95
-35
00 01 02 03 04 05 06 07 08 09 10 11 12
Germany
Italy
France
Portugal
Spain
Ireland
Greece
Forecasts
00 01 02 03 04 05 06 07 08 09 10 11 12 13
© Copyright Euler Hermes
12
Resurging sovereign risk in Europe has pushed a tenth
of global wealth into worse risk categories (from low to
medium+)
© Copyright Euler Hermes
13
Two major
secondround
effects
#1
Almost no growth in Europe till 2014, ineffective economic
policies, and negative impacts onto the rest of the world… as long
as the institutional gap is not bridged
#2
Too much time saving time: the industrial fabric is now atstake with rebounding insolvencies and the agony of some
key economic sectors
© Copyright Euler Hermes
14
Advanced economies: Credit crunch or not?
Need for balance sheet repair (deleveraging) offset by the reduced demand for credit
Changes in non performing loans between 2008 and 2011
Non-financial corporate indebtedness
(Bank Nonperforming Loans to Total Loans, change in pps)
(% of GDP)
Austria
France
United States
Eurozone
Japan
Germany
France
Italy
Spain
120
Germany *
Rise in non performing loans
110
Japan
100
Netherlands
United States
90
Belgium
80
United Kingdom
70
Spain
Portugal
60
Italy
50
Greece
40
Ireland
01
0
2
4
6
8
10
12
02
03
04
05
06
07
08
09
10
11
12
14
* For Germany, change is between 2008 and 2010.
Sources: IMF; Euler Hermes
Sources: Global Insight, Euler Hermes
© Copyright Euler Hermes
15
Rebounding insolvencies (1)
Our Global Insolvency Index is expected to
increase by +3% in 2013, after a rebound of
+4% in 2012 (unchanged from June forecast)
This forecast is in line with our slightly
revised downward central macroeconomic
scenario
Global Insolvency Index
World GDP (left axis)
Yearly levels - basis 100 in 2000 (*)
140
133
130
125
124
121
120
5%
125
-15%
4%
-15%
120
118
-10%
-12%
3%
114
110
100
-20%
EH Global Insolvency Index (right axis - reversed) (*)
128
-8%
106
105
96
93
90
-4%
2%
99 100
1%
-5%
-6%
-4%
1%
3%
4%
92
84
5%
3%
10%
0%
9%
15%
14%
-1%
80
0%
20%
-2%
70
25%
26% 25%
-3%
60
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: national statistics, Euler Hermes
(*) Countries weighted with 2011 GDP at current exchange rates
00
01
02
03
04
05
06
07
08
09
30%
10
11
12
13
14
Sources: national statistics, Euler Hermes
(*) Countries weighted with 2011 GDP at current exchange rates
© Copyright Euler Hermes
16
Rebounding insolvencies (2)
Between slower decrease (Americas, Asia-Pacific),
reversal trend (DACH, France, Northern region) or faster
increase (Mediterranean countries), all EH regions are
facing a less favourable perspective
550
Yearly changes of insolvencies
500
%of
World
GDP (*)
Weight
2009
2010
2011 2012 f 2013 f
Global Insolvency Index
83,8
100,0%
25%
-6%
-4%
4%
3%
Americas Index
28,8
34,4%
37%
-8%
-15%
-9%
-7%
Asia-Pacific Index
25,0
29,8%
-7%
-12%
-6%
-1%
3%
Northern Europe Index
12,7
15,1%
32%
-4%
-3%
6%
-2%
Germany-Austria-Sw itzerland Index
6,9
8,2%
13%
1%
-4%
0%
1%
France Index
4,1
4,9%
12%
-2%
-3%
3%
2%
Mediterranean countries Index
6,3
7,5%
65%
1%
17%
28%
19%
Euro zone Index
19,2
22,9%
39%
-1%
7%
18%
11%
Base 100 : 2000
Mediterranean countries slightly more
touched than previously expected
Sources: national statistics, Euler Hermes
(*) Countries weighted with 2011 GDP at current exchange rates,
450
Mediterranean countries
Euro zone
Americas
Northern Europe
400
Asia-Pacific
Index base 100:2000
350
300
250
200
150
100
50
04 05 06 07 08 09 10 11 12 13
© Copyright Euler Hermes
17
Rebounding Insolvencies (3)
Latest expectations for 2012 much less
favourable in numerous countries
-20%
Portugal
Greece
Spain
Brazil
Netherlands
Singapore
Hungary
Poland
Luxembourg
Italy
Sweden
Ireland
Belgium
Czech Republic
Finland
Russia
Australia
Global Insolvency Index
Austria
France
Slovak Republic
Taiwan
Switzerland
Germany
Hong Kong
-1%
Denmark
-1%
UK
-1%
Japan
-3%
Canada
-3%
Korea (South)
-3%
China
-5%
Norway -10%
USA -10%
0%
20%
60%
48%
30%
30%
28%
25%
20%
16%
15%
13%
12%
10%
7%
7%
5%
5%
5%
4%
4%
3%
3%
2%
2%
1%
0%
Source : Euler Hermes
© Copyright Euler Hermes
40%
Yearly changes
of insolvencies
2012 vs 2011
2013 perspective only slightly less
unfavourable for the majority of countries
-20%
Spain
Italy
Greece
Taiwan
Brazil
Czech Republic
Belgium
Slovak Republic
Hong Kong
Global Insolvency Index
Singapore
Australia
Japan
China
Poland
Denmark
France
Austria
Ireland
Germany
Sweden
Finland
Korea (South)
Portugal
Canada
UK
Russia
Norway
Luxembourg
Netherlands
USA
Hungary
-10%
0%
10%
20%
30%
22%
11%
10%
8%
6%
6%
5%
5%
3%
3%
3%
3%
2%
2%
2%
2%
2%
1%
1%
1%
0%
Yearly changes
of insolvencies
2013 vs 2012
0%
-1%
-2%
-2%
-3%
-4%
-4%
-5%
-5%
-8%
-9%
Source : Euler Hermes
18
The 3-tier Europe of DSOs… March 2013 deadline for
convergence to 60 days looms ahead
Variations among sectors are 4 to 5 times higher in the South than the North
Variation*
150
Spain
120
Italy
90
60
France
UK
Sweden
Germany
30
Norway
Belgium
Source: Euler Hermes
Denmark
DSOs
0
20
50
80
110
 Difference between the sector with the longest payment periods and the sector with the shortest payment periods.
Sectors studied: aerospace, air transport, automotive, chemicals, construction, forging, IT services, pharmaceuticals
© Copyright Euler Hermes
19
Four sector clusters pointing to very different dynamics
across Europe
Noticeable effects of the internationalization of some sectors
Variation*
150
Construction
Aerospace
120
Group 4
Pharmaceuticals
90
Forging
Chemicals
60
IT services
Group 3
Group 2
30
Air
transport
Automotive
Group 1
Source: Euler Hermes
DSOs
0
10
40
70
100
* Difference between the country with the sector's longest payment periods and the country with the sector's shortest
payment periods. Countries studied: Belgium, Denmark, France, Germany, Italy, Norway, Sweden, United Kingdom
© Copyright Euler Hermes
20
Demand fundamentals continue to weaken
Confidence: surveys show growing pessimism
Labor market is facing difficulties
Confidence levels for the industry (PMI)
Unemployment rates
12
11
US
Euro zone
Emerging economies
Global
65
(in %)
World
Advanced economies
United States
Eurozone
60
Emerging markets
Expansion area
55
10
9
50
8
45
7
Contraction area
40
6
35
5
4
07
08
09
Sources: Global Insight, Euler Hermes
10
11
12
30
07
08
09
10
11
12
Sources: Global Insight, Markit, Euler Hermes
© Copyright Euler Hermes
21
Industry sectors: the closer to the consumer, the
stronger the headwinds
Economic sectors put to the test
1 - Europe: An increasing number of industries
experiencing difficulties with the austerity
measures: Construction, distribution,
automotive industry and airline companies
2 - United States: the property market is still an
obstacle, but the American industry is
progressing favourably
3 - Emerging economies: Favourable outlook
for sectors focused on domestic demand:
infrastructure (roads and railways, automotive)
but structuring still needs to happen
© Copyright Euler Hermes
22
Good Outlook
A
Pharmaceuticals:
Healthy Growth
The basic market indicators are looking good
A market growth of 4% per year
Incidence in the accounts of the great laboratories of fallen blockbuster drug patents
Emerging countries represent only 20% of pharmaceutical markets, they nevertheless represent growth over the
long term
Distribution of global sales of drugs (2011)
To Watch :
North America
38%
Europe (including
Russia)
31%
-The expiry of patents for blockbuster pharmaceutical products in
2012
-Changes in the financial situation of public health insurance
schemes
-The consequences of the “Obamacare” law upon the American
activity levels for the laboratories
Asia,
Océania,
Africa 15%
Japan 10%
Latin America 6%
-The growth of the market for generic products in Europe
© Copyright Euler Hermes
23
Consumer electronics sector:
A digital future
Mixed Outlook
B
A deflationary virus
In 2012, the electronic public should experience a global growth of 2.5%.
The high innovation sector can make obsolete products leading to an unprofitable activity
An area now dominated by South Korean groups, while Japanese players are undergoing
restructuring
Global market share of television manufacturers (2011)
Samsung
23%
Others (Tpv,
Philips, Apple
TV..)
37%
To Watch :
- Stagnant household consumption in the developed
nations
Sony
10%
LG
13%
Sharp
8%
Panasonic
9%
- Any restructuring underway by the Japanese
manufacturers
- A slowdown in the pace of product innovation
© Copyright Euler Hermes
24
Bad Outlook
C
Construction:
Rescue of the impossible recovery
Construction and growth go hand in hand
European construction, which weighs one third of the world market is in trouble
U.S. industry has overcome its lowest point, but it will take time for it to recover
Emerging, large needs for housing and infrastructure, they are the ones that feed the
sector with growth
Construction market (in billions of euros)
2010
North America
1 004
Latin America
281
2011
Var
1 016
1,2%
310
10,6%
Europe
1 873
1 967
5,0%
Asia
2 396
2 674
11,6%
Middle East
185
212
14,8%
Africa
57
60
5,6%
Total
5 796
6 240
7,7%
To watch:
-The rarefaction of financing and investment by a worsening
financial situation by both households and states
-Falls in the prices of existing homes and the disposal of
stocks of unsold homes
-Erosion in the profitability of companies already weakened by
the slowdown in activity, the heightened competition and the
price level of raw materials
- Signs of an upturn in the corporate real estate market and
growth in the renovation market
© Copyright Euler Hermes
25
Thank you for your
attention
Ludovic Subran
[email protected]
Ph: +33184115399
Euler Hermes monitors country risk in 241 countries
and territories
New patterns of growth
The growth of social
risk
Macroeconomic
imbalances
Unequal distribution of the
benefits of growth
+
+
The global growth
(growth on emerging
economies)
Significant changes in
Demographic trends
+
the business climate
(and communication tools)
+
+
Scaricity of resources
(raw material)
Sovereign debt
Currency crises
Strict political regimes
+
+
Growth of reciprocal
exchange
Difficulties of the banking
sector
New form of economic
risk
A more volatile political
risk
Economic risk +
Political risk +
The increase in
interdependency
Stronger economic risk
Financial instability
Financial imbalances
+
Volume of cashflows and
capital flows
+
Volatile risk aversion
Cyclical Vulnerability Financial Vulnerability
© Copyright Euler Hermes
27