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Dun & Bradstreet’s

Global Economic Outlook

2020 Vision

Country Risk Team

February 2016

2

Country Risk Services

Follow us on Twitter @DnBUS | #DnBEconBrief

Economic downturns, political upheaval, and natural disasters can all have an impact on

global trade. Unrest can result in overnight barriers to imports, added taxes to exports,

piracy activity in key shipping lanes, and other substantial obstacles to global business.

D&B’s Country Risk Module provides comprehensive analysis on over 130 individual

countries that account for more than 95% of the global GDP, helping you understand:

Political Risk: How stable is the country’s government?

Economic Risk: Is the economy expanding or contracting?

External Risk: Is the currency stable or unstable?

Commercial Risk: Will I get paid and how quickly?

Trade Environment: Have import regulations changed?

Contact the teamD&B Country Risk Services

For information relating to D&B’s Country Risk Services.

UK Enquiry

Telephone: 01628 492700

Fax: 01628 492929

Email: [email protected]

International Enquiry

USA

Telephone: 1-800 234-3867 Option 1, 1, and then 2


Reps are available M-F 8am-6pm eastern time

Rest of World

Telephone: +44 1628 492700


http://www.dnbcountryrisk.com/

mailto:[email protected]



3

Connect with the team


D&B’s Country Risk team includes seasoned economists who compile and analyze country-specific insights from all major sources:

finance ministries, central banks, local chambers of commerce, embassies, trade organizations, and other economic data sources such

as the UN, World Bank, International Monetary Fund, Organization for Economic Development, and EU.

Michelle Campbell Latin America [email protected]

Jaspreet Sehmi Eastern Europe & Central Asia [email protected]

Warwick Knowles Middle East & North Africa [email protected]

Isaac Leung Asia Pacific [email protected]

Oana Aristide Asia Pacific, Nordic Region [email protected]

Adam Morehouse Asia Pacific, North America [email protected]

Bodhi Ganguli North America, Sub-Saharan Africa [email protected]

Daniele Fraietta Central Europe [email protected]

Markus Kuger Western Europe [email protected]

Stay Tuned next week to set yourself up for success in 2016 – and beyond:

Next-Generation Risk Intelligence

Wednesday February 17 – 2 pm ET

Register: http://businessinsight.dnb.com/CFO_Cirrus_Webinar_0216

The smart thing to do: tune in!










http://businessinsight.dnb.com/CFO_Cirrus_Webinar_0216

4

Agenda

1. Our view of the world in 2016

2. Regional outlook

3. Risks to 2020


1. Our view of the world in 2016

6

Much has changed over the last 20 years as

the world has become a riskier place


CIPS Global Risk Index (CIPS GRI) – powered by Dun & Bradstreet (100=Most Risk)

0

10

20

30

40

50

60

70

80

90

100

Q3

19

94

Q1

19

95

Q3

19

95

Q1

19

96

Q3

19

96

Q1

19

97

Q3

19

97

Q1

19

98

Q3

19

98

Q1

19

99

Q3

19

99

Q1

20

00

Q3

20

00

Q1

20

01

Q3

20

01

Q1

20

02

Q3

20

02

Q1

20

03

Q3

20

03

Q1

20

04

Q3

20

04

Q1

20

05

Q3

20

05

Q1

20

06

Q3

20

06

Q1

20

07

Q3

20

07

Q1

20

08

Q3

20

08

Q1

20

09

Q3

20

09

Q1

20

10

Q3

20

10

Q1

20

11

Q3

20

11

Q1

20

12

Q3

20

12

Q1

20

13

Q3

20

13

Q1

20

14

Q3

20

14

Q1

20

15

Q3

20

15

Source: CIPS, Dun & Bradstreet

North America

Latin America

Asia Pacific

Eastern Europe and Central Asia

Western & Central Europe

Middle East and North Africa

Sub-Saharan Africa

7

Giant upstream investment bubble of

historic proportions: steelmaking


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

0

200

400

600

800

1000

1200

1400

1600

1800

19

00

19

05

19

10

19

15

19

20

19

25

19

30

19

35

19

39

19

44

19

49

19

54

19

59

19

64

19

69

19

74

19

79

19

84

19

89

19

94

19

99

20

04

20

09

20

14

Source: World Steel Association, IMF, UN, D&B

World Steel Production (000 tonnes)

World Population (1950 = 100)

World Economic Output (2005 = 100)

Global Crude Steel Output

First Oil Crisis

Second phase of Chinareforms complete

Global Financial Crisis

8

Collapsing crude prices a weakness for some,

will be a benefit for others


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Saudi Arabia Azerbijan Iraq Kazakhstan Bolivia Norway Russia Nigeria Malaysia

Source: World Bank, Dun & Bradstreet

Fuel Exports as a percentage of GDP (2013)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Belgium Bulgaria South Korea Thailand Senegal Lebanon Ukraine Morrocco India


Fuel Imports as a percentage of GDP (2013)

9

The last time commodities were this cheap


Natural gas: US Oct-1995

Gasoline: US Gulf Coast Apr-2004

Crude oil: WTI Apr-2004

Crude oil: Brent Jun-2004

Coal: Australia Jan-2007

Iron Ore: Tianjin Dec-2007

Aluminium May-2009

Copper May-2009

Zinc: UK May-2009

Cotton: Liverpool Oct-2009

Natural gas: US * Jan-1991

Crude oil: Brent Nov-2003

Gasoline: US Gulf Coast Dec-2003

Crude oil: WTI Dec-2003

Coal: South Africa Jan-2004

Copper Sep-2005

Iron Ore: Tianjin Dec-2007

Zinc: UK Mar-2009

Source: Financial Times, Bureau of Labor Statistics, Dun & BradstreetData as of December 2015 or in some cases November 2015

Nominal Basis Real Basis-deflated using US: CPI (NSA, 1982-84=100)

* Cheapest since records began.

10

Investor exposure to the oil and gas sector varies

across countries


Emerging Europe

oil gas

non-oil andgas

Canada TSX

oil gas

non-oil andgas

FTSE 100

oil gas

non-oil andgas

Emerging Economies

oil gas

non-oil andgas

S&P 500

oil gas

non-oil andgas

FTSE World

oil gas

non-oil andgas

Equity market exposure to the oil and gas sector(December 2015)

Source: FTSE, Standard & Poor’s , Dun & Bradstreet

2. Regional outlook

Latin America

13

Investors’ sentiment and expectations

on downtrend


-40

-30

-20

-10

0

10

20

30

40

50

60

Q1

05

Q3

05

Q1

06

Q3

06

Q1

07

Q3

07

Q1

08

Q3

08

Q1

09

Q3

09

Q1

10

Q3

10

Q1

11

Q3

11

Q1

12

Q3

12

Q1

13

Q3

13

Q1

14

Q3

14

Q1

15

Q3

15

Economic expectations/sentiment Current economic situation

Source: Sentix, Dun & Bradstreet

-3

-2

-1

0

1

2

3

4

5

6

7

Source: Haver Analytics, Dun & Bradstreet

Annual real GDP growth (%)

Latin America & Caribbean World

14

Interest rates hiked as inflation

expectations build and US Fed tightens


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

5

10

15

20

25

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Q4

14

Q1

15

Q2

15

Q3

15

Source: Banco Central do Brazil, Instituto Brasilerio de Geografia e Estatistica, Dun & Bradstreet

Brazil: Interest Rate: Selic - Target Rate (EOP, %) Brazil: Natl Consumer Price Index [Extended,IPCA] (SA, Dec-93=100) % Change - Year to Year

15

Deteriorating debt-service ratio


0

10

20

30

40

50

60

70

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Q4

13

Q1

14

Q2

14

Q3

14

Q4

14

Q1

15

Q2

15

Q3

15

Source: Banco Central do Brasil, Dun & Bradstreet

Brazil: External Indebtedness: Debt Service / Exports (EOP, %)

Eastern Europe & Central Asia

17Follow us on Twitter @DnBUS | #DnBEconBrief

Eastern Europe & Central Asia: key issues

Marked deceleration in GDP growth reflecting ‘new normal’ of lower oil prices…

2016-2020: 2.4%

2004-2008: 7.0%

Oil price slump has prompted shift to freely floating exchange rate regimes: Russia

(Nov 2014); Kazakhstan (Aug 2015); Azerbaijan (Dec 2015)

Geopolitical tensions persist…

Despite abatement of fighting between Ukrainian troops & Russian-backed separatists in

eastern Ukraine, sporadic flare-ups occur and full resolution remains a distant prospect.

Structural impediments continue to hamper the business environment and restrain

long-term growth potential…


Sluggish investment trend set to continue…

-60

-50

-40

-30

-20

-10

0

10

20

30

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Gross Fixed Capital Formation (annual % change)

Russia Ukraine Kazakhstan



Eastern Europe & Central Asia: Risks & opportunities

Risks Opportunities

Ageing population – deficiency in labour supply

Poor infrastructure and endemic corruption persist

Geopolitical tensions escalate – increase in protectionist measures

Lower demand for non-essential goods

Social unrest – disruptions to business continuity

Budget retail

Drive to diversify – opportunities to invest in nascent sectors, e.g. agriculture

Domestic tourism

Infrastructure development –opportunities for foreign investors, e.g. Kazakhstan – Strategy 2050

The ‘grey dollar’

Middle East and North Africa

21

Factors affecting investment in MENA to 2020


Barriers

− Security Issues

− Hydrocarbon Dependency

− Business Environment

Drivers

+ Easing of sanctions on Iran

+ Liberalisation and diversification policies in oil rich

countries

22

Hydrocarbon Dependency and Vulnerability


Source: Dun & Bradstreet

23

Structural issues undermining investment


Sources: World Economic Forum, World Bank, Transparency International, Dun & Bradstreet

Asia Pacific

25

80

90

100

110

120

130

140

150

160

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Japan GDP per emp Japan GFCF per emp US GDP per empl US GFCF per empl

Japan’s problem is dramatically low

investment


Index 1995=100

Source: BLS, BEA, Japanese Ministry of Health, Labour and Welfare, Cabinet Office of Japan, Dun & Bradstreet

26

India: GDP output growth improves but corporate debt, bank

asset quality are concerns and create downside risks


-30

-20

-10

0

10

20

30

40

Mar

'09

Mar

'10

Mar

'11

Mar

'12

Mar

'13

Mar

'14

Mar

'15

Jun

'15

Sep

'15

Sales Growth

Net Profit Growth

5.0

6.2

4.44.1

7.27.5

6.6

5.3

7.4

8.4

6.8

6.1

7.17.4

4.0

5.0

6.0

7.0

8.0

9.0

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

Q1

20

15

Q2

20

15

Q3

20

15

Real output growth

3.4

4.4

4.8

5.1

3.0

3.5

4.0

4.5

5.0

5.5

Mar'13 Dec'13 Dec'14 Sep'15

Positives – tentative recovery in real output growth and profitability since 2014

Concerns – distressed debt 11% total – 16% of corporations have interest rate coverage < 1.0

Corporate ProfitabilityBank Asset Quality –nonperforming loans % total

Source: Central Statistics Office, Reserve Bank of India, Dun & Bradstreet India


China faces a potential debt crisis

0

5

10

15

20

25

Q1

-19

99

Q3

-19

99

Q1

-20

00

Q3

-20

00

Q1

-20

01

Q3

-20

01

Q1

-20

02

Q3

-20

02

Q1

-20

03

Q3

-20

03

Q1

-20

04

Q3

-20

04

Q1

-20

05

Q3

-20

05

Q1

-20

06

Q3

-20

06

Q1

-20

07

Q3

-20

07

Q1

-20

08

Q3

-20

08

Q1

-20

09

Q3

-20

09

Q1

-20

10

Q3

-20

10

Q1

-20

11

Q3

-20

11

Q1

-20

12

Q3

-20

12

Q1

-20

13

Q3

-20

13

Q1

-20

14

Q3

-20

14

Q1

-20

15

Q3

-20

15

Source: National Bureau of Statistics, Bank for International Settlements, D&B

China: Debt Service Ratio of Private Nonfinancial Sector (%)

China: Lending Rate: Longer than 5 Years (% per annum)


Investment in upstream sector – China’s bubble

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Q4-2

00

4

Q2-2

00

5

Q4-2

00

5

Q2-2

00

6

Q4-2

00

6

Q2-2

00

7

Q4-2

00

7

Q2-2

00

8

Q4-2

00

8

Q2-2

00

9

Q4-2

00

9

Q2-2

01

0

Q4-2

01

0

Q2-2

01

1

Q4-2

01

1

Q2-2

01

2

Q4-2

01

2

Q2-2

01

3

Q4-2

01

3

Q2-2

01

4

Q4-2

01

4

Q2-2

01

5

Q4-2

01

5

Source: China Bureau of National Statistics, Haver Analytics, Dun & Bradstreet

Coal Mining, Washing

Petroleum & Natural Gas Extractn

Non-Metal Minerals Mining

Ferrous Metals Mining

Non-Ferrous Metals Mining

Smelting & Pressing of NonFerrous Metals

Smelting and Pressing of Ferrous Metals

China - Domestic upstream sector investment - CNY billions, 4-quarter moving average

Sub-Saharan Africa


Exposure to China will exacerbate commodities bust

and widen fiscal deficits

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

Source: World Bank, IMF, Dun & Bradstreet

Select Commodity Prices, change from Jan 2013, %

0 20 40 60 80 100

Nigeria

Zambia

South Africa

Ghana

Gabon

Ethiopia

Zimbabwe

Angola

Congo, Rep.

Sierra Leone

2014 Exports to China, % of Total


Weak regional currencies are fueling inflation, undoing

years of improvement

-50 -40 -30 -20 -10 0 10 20 30

Somali Shilling

Sierra Leone Leone

Ethiopian Birr

Mauritian Rupee

Kenyan Shilling

Ghana Cedi

Nigerian Naira

Botswana Pula

Ugandan Shilling

Tanzanian Shilling

Angolan Kwanza

Malawian Kwacha

South African Rand

Mozambique New Metical

Zambian Kwacha

Currency vs. USD, %, Oct 2014 to Dec2015 (-value = depreciation)

0 5 10 15 20

Mauritius

Botswana

South Africa

Tanzania

Kenya

Uganda

Nigeria

Angola

Ghana

Zambia

CPI inflation, % (Q4 2015 average)

Source: Bloomberg, Country Statistical Offices, Dun & Bradstreet

North America


Our proprietary micro data suggest a modest, steady

trajectory for the U.S. …


… And drive our near term baseline outlook

• D&B’s real GDP forecasts, % SAAR:

2012 2013 2014 2015E 2016F 2017F 2018F 2019F

2.2 1.5 2.4 2.5 2.5 2.6 2.4 2.3

60

70

80

90

100

110

120

-10

-8

-6

-4

-2

0

2

4

6

Q12005

Q32005

Q12006

Q32006

Q12007

Q32007

Q12008

Q32008

Q12009

Q32009

Q12010

Q32010

Q12011

Q32011

Q12012

Q32012

Q12013

Q32013

Q12014

Q32014

Q12015

Q32015

GDP, % SAAR, 2-qtr lagged

SBHI, level


Consumers well placed to lead, with less drag from

public sector

450

500

550

600

650

700

-15

-10

-5

0

5

10

15

Rea

l PC

E, %

y/y

Source: BEA, US Federal Reserve, Dun & Bradstreet

Household Net Worth, % ofDisposable Personal Income (R)Durables

Non-durables

Services

-1

-1

0

1

1

2

Reduced Fiscal Drag

Federal

State & Local

Contribution to GDP, % points


Headwinds are mostly external, keeping the dollar

strong

8.0

8.2

8.4

8.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

10.2

46

47

48

49

50

51

52

53

54

55

56

57

58

Jan

-20

13

Mar

-20

13

May

-20

13

Jul-

20

13

Sep

-20

13

No

v-2

01

3

Jan

-20

14

Mar

-20

14

May

-20

14

Jul-

20

14

Sep

-20

14

No

v-2

01

4

Jan

-20

15

Mar

-20

15

May

-20

15

Jul-

20

15

Sep

-20

15

No

v-2

01

5

Source: BEA, ISM, Bureau of the Census, Dun & Bradstreet

Dollar Strength Remains a Drag ...

ISM Mfg: New Export Orders Index (SA,50+ = Econ Expand) 3-monthMovingAverage

Nominal Broad Trade-Weighted ExchangeValue of the US$ (Jan-97=100), invertedscale

-6

-4

-2

0

2

4

6

8

10

% y

/y

… With Implications for Capex

Corporate Profits

Core Capital GoodsOrders


Fed has ambitious rate hike targets in 2016, but will

struggle to execute them

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2015 2016 2017 2018

Targ

et

FFR

at

End

-of-

year

, %

Source: US Federal Reserve, Bloomberg, Dun & Bradstreet

December 2014

March 2015

June 2015

September 2015

December 2015

Market implied, Jan 04, 2016

Revised down

No change in Dec

Europe


Deflationary pressures will slowly recede

• Inflation rates currently significantly undershoot the target rate

• Over the long run, we expect inflation to return to the 2.0% target.

-2

-1

0

1

2

3

4

5

2007 2009 2011 2013 2015 2017 2019

Source: Eurostat, Dun & Bradstreet

Inflation (in %)

Eurozone France Germany Greece Spain


Labour market conditions are gradually brightening

• However, differences remain at the country-level

• Periphery is benefitting from labour market reforms

Source: Various National Statistics Offices, Dun & Bradstreet


Key risks

Images are sourced from: Reuters, Getty Images , Franz Neumayr, Markus Tschepp,

3. Risks to 2020

43

1.Lower sales growth in high-profile

emerging markets 2016-2020


0.0

5.0

10.0

15.0

20.0

25.0

30.0

January 2015 January 2016


China India Russia Brazil South Africa

2019 forecast for 'B.R.I.C.S.’ economies - Gross Domestic Product (USD trn.)

USD24.7trn

USD18.9trn

44

2. Slower Chinese external demand will likely create trade

disruptions among dependent economies


0%

2%

4%

6%

8%

10%

12%

14%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Source: IMF, Dun & Bradstreet

World: The annual share of exports to China P.R.

Advanced Economies: The annual share of exports to China P.R.

Oil Exporting Countries: The annual share of exports to China P.R.

0%

5%

10%

15%

20%

25%

30%

35%

40%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Source: IMF, Dun & Bradstreet

Korea: The share of annual exports to China P.R. Australia: The share of annual exports to China P.R.

Chile: The share of annual exports to China P.R. Peru: The share of annual exports to China P.R.

Iran: The share of annual exports to China P.R. Iraq: The share of annual exports to China P.R.

45

3.Perfect storm for Swiss watch industry

shows how shocks can coalesce


Factors contributing to the slump in sales

1. Macroeconomic: The Swiss Franc super-strengthening after the lifting of the cap on the Swiss franc.

2. Fashion/Technology: Smartwatches eating into the market.

3. Politics/Compliance: Crackdown on corruption in China

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

to

Ju

ly

Source: United Nations-COMTRADE, Dun & Bradstreet

Swiss watch exports 1996-2015, y/y % change watches: precious metal case

watches: precious metal case, hand-wound

watches: base metal case


4. Compliance violations continue to add up and have

sizable effects on corporate earnings

2016

Goldman Sachs

Volkswagen

Major fines delivered by the US Department of Justice (Billions USD)

0

10

20

30

40

50

60

70

80

90

100

2010-2015

Source: Various News Agencies, Factiva, Dun & Bradstreet

Bank of America

BP

JP Morgan

BNP Paribas

Citigroup

Glaxosmithkline

Deutsche Bank

Estimates are

between

$26-86 for

Volkswagen


5. The historical disaster damage on GDP

during the most severe El Nino/La Nina Years where (Oceanic Nino Index >=1 or <=-1) {Less geophysical damage}

Annual percentage Impact on GDP

Central America\South America Southern\Eastern Africa Southeast Asia

Source: Noaa, Em-Dat, Dun & Bradstreet


Thin Red Wedge of Extreme Risk: how the global

distribution of country risk changed 2007-16


0 10 20 30 40 50 60 70 80 90 100

20

07

20

16

1 2 3 4 5 6 7

Global distribution of country risk by economy size - % by GDP in USD billions

20162007

49

Dun & Bradstreet will continue to keep an eye on the

health of the global economy to bring you our views

and perspectives.


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