Fly me to the moon Economic Research Paris, December · PDF fileEconomic Research Paris,...
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Economic Research Paris, December 2017 Image courtesy of pixabay.com, CC0 Fly me to the moon
Transcript of Fly me to the moon Economic Research Paris, December · PDF fileEconomic Research Paris,...
Economic ResearchParis, December 2017
Ima
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Fly me to the moon
2
World growth: Let’s get it started
Growth on a higher print for a second quarter in a row. These are the best two consecutive quarters since 2010.
Growth is revised up almost everywhere,particularly in the US, and Europe. Exceptionsare in the Middle East, Africa and the UK.
Global GDP growth forecasts (%)
Sources: Bloomberg, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz Research
World GDP growth, q/q annualizedFragile four are Brazil, Russia, Turkey and South Africa
-1%
0%
1%
2%
3%
4%
5%
6%
10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1
Others Fragile FourAPAC ex China ex Japan IndiaJapan EuropeChina USWorld aggregate
17Q3:+3.8%
2019
Latest
forecast
Revision
(pps)
Latest
forecast
Revision
(pps)
Latest
forecast
World GDP growth 2.6 3.2 0.2 3.2 0.2 3.1
United States 1.5 2.3 0.3 2.6 0.4 2.2
Latin America -1.2 1.4 0.2 2.4 0.2 2.8Brazil -3.6 1.1 0.4 2.5 0.6 3.0
United Kingdom 1.8 1.5 0.1 1.0 = 0.8
Eurozone members 1.7 2.4 0.3 2.2 0.4 2.0
Germany 1.9 2.6 0.4 2.5 0.5 1.8
France 1.1 1.8 0.2 1.9 0.2 1.9
Italy 0.9 1.6 0.2 1.3 0.2 1.2
Spain 3.3 3.1 0.1 2.4 0.1 2.2
Russia -0.2 1.6 0.1 1.9 = 1.8
Turkey 3.2 6.7 1.5 4.0 0.5 3.7
Asia 4.9 5.2 0.2 5.0 0.2 4.9
China 6.7 6.8 0.1 6.4 0.1 6.2
Japan 0.9 1.7 0.2 1.2 0.3 1.0
India 7.1 6.5 = 7.3 = 7.3
Middle East 4.7 1.8 -0.1 2.7 0.1 3.0
Saudi Arabia 1.7 -0.3 -0.8 1.7 -0.3 2.0
Africa 1.3 3.0 -0.3 3.5 0.5 3.5
South Africa 0.3 0.8 0.2 1.4 0.2 1.8
* Weights in global GDP at market price, 2016
NB: The revisions refer to the changes in our forecasts since the last quarter
2016 2017 2018
3
2017 was about growth acceleration, despite numerous policy nudges
Global GDP growth accelerated by +0.6pp to 3.2%
Trade flows recovered more than expected by +7.5% in value
A synchronized growth momentum in the US, the Eurozone and Asia
Recession in some (Brazil, Russia, South Africa) Emerging Markets ended
World insolvencies finally increased by +1% (big insolvencies particularly on the rise)
Increased protectionism from the US to China
The Middle East crisis worsened
Po
sit
ive
su
rpri
se
s
Ne
ga
tive
su
rpris
es
US-North Korea Crisis(April)
New Crown Prince of Saudi Arabia: MBS(June)
German Elections(September)
FED Balance Sheet Normalization (September)
Qatar Diplomatic Crisis(June)
OPEC confirms Decision to Curb Output(November)
19th National Congress of the CPC(October)
French Elections(May)
Dutch Elections(March)
Iranian Elections(May)
Article 50 Activated (Brexit)(March)
4
2018 should remain quite a busy year
March 2018: Russian presidential electionsPutin renews mandate
October 2018: First Round of Brazilian Presidential ElectionsReturn to the past possible
July 2018: Mexican ElectionsModerate Stance will continue
November 2018: US Midterm ElectionsHouse/Senate majorities remain largely unchanged
Q1 2018: German coalition talksNew elections
H1 2018: Italian electionInconclusive election and political gridlock
Source: Euler Hermes
March 2018: Inauguration of the 13th National People’s Congress & New Governor of PBOC
NB: In Italic our baseline assumptions
October 2018: Finalization of Brexit transition deal and preliminary trade negotiationsRisk of No-deal Brexit
Election Season: Thailand, Cambodia, Pakistan, Malaysia
Q1 2018: NAFTA renegotiations scheduled to end or US withdrawal
October 2018: ECB begins winding down QE program
April 2018: Hungarian electionEmergence of CEE populist block
Election Season: Brazil,Colombia,Costa Rica,Paraguay,Venezuela
January 2018: US Tax Reform
Election Season: Egypt, SouthAfrica (in 2019, but
with regional impact in 2018)
Middle East main tension points:- Saudi v. Iran, incl. Straits of Hormuz- Yemen, Sunni v. Shia- Qatar v. Saudi Arabia, UAE, Bahrain, Egypt (blockade)
5Sources: Euler Hermes, Allianz Research
Oil: Average oil prices are revised up to 62 $/bbl in 2018. Downside risk limited by good growth momentum.
Exchange rate, USD/EuroLast data, as of Dec. 12th
Prices in a nutshell: No big changes
Sources: Euler Hermes, Allianz Research
Exchange rates: Increasing interest rate divergence to nurture dollar appreciation, to USD 1.15 / EUR on average in 2018
Oil price, brent $/bblLast data, as of Dec. 12th
0.9
1
1.1
1.2
1.3
1.4
1.5
14 15 16 17
1.1755
USD appreciating
0
20
40
60
80
100
120
140
14 15 16 17
63.5
6
Agenda
1 Global themes: Walking on the moon
2 Regional outlooks: What to watch in the US, Europe, China and Emerging Markets
7
Theme #1: Trade, driving faster
Global Trade is levelling off to a new regime characterized by a recovery of prices and an improvement in volume.
Strong demand growth will benefit to (andcome from) the Eurozone and Asia.
Growth in Global Trade of Goods and Services(in %)
Nominal exports gain (in GDP point) for selected economies on 2018
0% 1% 2% 3% 4% 5%
Germany
Spain
Italy
France
Indonesia
South Korea
Russia
Mexico
Canada
India
China
United Kingdom
Australia
Saudi Arabia
United States
Sources: IHS, Euler Hermes, Allianz Research Sources: Chelem, Euler Hermes, Allianz Research
8
Weigh #1: A marked slow-down in 2017, though the US are heading the opposite way
Among the top 10 most protectionist countries, only the US has deployed more measures in 2017 compared to 2016.
Sources: GTA, Euler Hermes, Allianz Research
New protectionist measures
398
288
247
153 150137
12196 89 86
3-14
-69
-15 -6 -1 -8-34
-12 -21
-100
0
100
200
300
400
500
US
India
Russi
a
Arg
entin
a
Bra
zil
Indonesi
a
Jap
an
United K
ingdom
Chin
a
Be
laru
s
2017. World=404
2016. World=762
2015. World=944
2014. World=1009
2017 - 2016
Agrifood, Metals and Chemicals are the most impacted sector. Some others industries don’t see much attention (Retail, Commodities..)
Sources: GTA, Euler Hermes, Allianz Research
Protectionist measures against specific sectors
685
482
275
207177
152125 119
87 70 61 59 43 33 33 336 6 5
0
100
200
300
400
500
600
700
Ag
rifo
od
Meta
ls
Chem
icals
En
erg
y
Machin
ery
& E
qu
ipm
ent
Constr
uction
Te
xtile
s
Au
tom
otive
manu
factu
rers
Se
rvic
es
Tra
nsp
ort
Co
mpute
rs &
Te
lecom
Ele
ctr
on
ics
Household
Equip
men
t
Au
tom
otive
su
pplie
rs
Pa
per
Ph
arm
aceu
ticals
Com
moditie
s
Reta
il
So
ftw
are
& IT
serv
ices
2017
2016
2015
2014
9
Trend #1: Trade and growth, they live together
New exports orders are growing at an increasing pace for most countries.
Compare trade openness to growth q/q Q3figures (scatter plot) to show how openeconomies are driven by the momentum
Trade openness and GDP growth in Q3 (q/q)
Sources: IHS, Euler Hermes, Allianz Research
PMI manufacturing: new export orders sub-indices(%)
Sources: Euler Hermes, Allianz Research
40
45
50
55
60
65
US
Chin
a
Jap
an
Sp
ain
Germ
any
Fra
nce
Italy
UK
Bra
zil
Turk
ey
Ko
rea
Taiw
an
apr-may-jun 17
sep-oct-nov 17
China
Germany
Canada
India
Indonesia
ItalyJapan
Korea
Poland
Mexico
France
Switzerland
United Kingdom
United States
Brazil
Malaysia
Philippines
Russia
-0.5
0.0
0.5
1.0
1.5
2.0
0 20 40 60 80
GD
P g
row
th in
Q3
(q
/q)
Level of openess (exports in % of GDP)
10
Theme #2: Goodbye slack, Hello nominal growth
No more slack in the Eurozone, some leeway to grow without inflation in emerging markets.
Sources: IHS, Bloomberg, Euler Hermes, Allianz Research
Level of Capacity Utilization(%)
76.1
84.7
77.578.6
60
65
70
75
80
85
90
07 08 09 10 11 12 13 14 15 16 17
US
UK
Brazil
Turkey
77.6
85.479.1
87.2
60
65
70
75
80
85
90
07 08 09 10 11 12 13 14 15 16 17
Italy France
Spain Germany
Corporate turnover growth kept accelerating, particularly in the Eurozone.
Turnovers growth in manufacturing(%, y/y)
1.1%
5.3%
6.6%
4.3%
-6%
0%
6%
13 14 15 16 17
US ChinaUK Japan
5.5%
4.4%
7.1%
-5%
0%
5%
10%
13 14 15 16 17
GermanyFranceItalySpain
Sources: IHS, Bloomberg, Euler Hermes, Allianz Research
11
Weigh #2: Cost pressures are mopping up the value chain
Margins can be squeezed by the return of costpressures: Corporates saw input pricesincreasing faster than output prices.
PMI: Input prices vs. output prices
Sources: IHS, Euler Hermes, Allianz Research
US Japan
China
Brazil
India
Korea
Russia
Indonesia
Mexico
UKSpain
Italy
France
Germany
TaiwanTurkeySingapore
-5
0
5
10
15
20
-10 -5 0 5 10 15 20
PM
I outp
ut
prices
(sep
to n
ov
2017 -
sep
to n
ov
2016)
PMI input prices (sep to nov 2017 - sep to nov 2016)
Output prices expectations growing
faster than input’s
Input prices expectations
growing faster than output’s
Output prices expectations positive while
input’s negatives
Neutral
Input prices expectations positive while output’s
negatives
And producer prices’ inflation did not translated into higher consumer prices.
Sources: IHS, Euler Hermes, Allianz Research
PPI – CPI(%, y/y)
-15%
-10%
-5%
0%
5%
10%
15%
07 08 09 10 11 12 13 14 15 16 17
US
Eurozone
China
JapanConsumers' prices outpacing producers'
Producers' prices outpacing consumers'
12
Trend #2: Monetary policy to be tightened, since financial and economic conditions improved
Labor markets conditions are significantlytightening globally
Unemployment rate in developed economies (%)
Sources: Euler Hermes, Allianz Research
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
90 93 96 99 02 05 08 11 14 17 20
Unemployment rate in advanced economies
1990-2017 average
IMF Forecast
Global liquidity is up, particularly since dollarrecession is over.
World monetary and financial conditions Contribution by country
Sources: IHS, Euler Hermes, Allianz Research
-80
-60
-40
-20
0
20
40
60
80
07 08 09 10 11 12 13 14 15 16 17
EM United Kingdom
China Japan
United States Euro Area
FCI
13
Theme #3: Growth is in-sync
Super 8: Industrial production is growing in each of the 8 key economies.
Sources: IMF, Euler Hermes, Allianz Research
Industrial production growth (y/y, %, 3-month average)
In Emerging Markets, PMI kept acceleratingand reached its best level since February 2011
Source: Bloomberg, Euler Hermes, Allianz Research
Emerging Markets aggregate manufacturing PMI
40
42
44
46
48
50
52
54
56
58
60
08 09 10 11 12 13 14 15 16 17
November-17
52.6
6.3%4.5%
2.2%2.6%
-10%
-5%
0%
5%
10%
15%
20%
11 12 13 14 15 16 17
China Japan
US UK
3.7%3.8%
3.2%
1.0%
-15%
-10%
-5%
0%
5%
10%
11 12 13 14 15 16 17
France
Germany
Italy
Spain
14
Weigh #3: Growth is not only about good cholesterol
Compared to the last growth cycle (2011), the debt intensity of growth increased.
Equity valuation increased and marketcapitalization surged to new peaks.
US Market Capitalization in % of Nominal GDP
Sources: IMF, Euler Hermes, Allianz Research
Credit intensityUnits of debt needed to generate one unit of GDP
Calculation made on a 4-quarters basis
Sources: Bloomberg, Euler Hermes, Allianz Research
-4
-3
-2
-1
0
1
2
3
4
5
US
Chin
a
Fra
nce
Jap
an
UK
Italy
Bra
zil
Turk
ey
Indonesi
a
q2 11
q2 17
50
60
70
80
90
100
110
120
130
140
150
04 05 06 07 08 09 10 11 12 13 14 15 16 17
15
Trend #3: Emerging Markets are ready to grow faster
The Emerging Markets are entering in a new credit cycle: External and domestic conditions are improving at the same time.
Is the Emerging consumer back in town? Retailsales growth shows acceleration of consumerspending in most EMs
Retail sales growth (y/y, 3-month average)
Sources: IMF, Euler Hermes, Allianz Research
Credit conditions: external vs. domestic
External: Net capital flows, USD bn (excl. China and Russia)
Domestic: IIF Bank Lending Conditions index (read it as a PMI)
Sources: Bloomberg, Euler Hermes, Allianz Research
*Q2 2017 was used for Mexico as the economy contracted temporarily in Q3 due to natural disasters
4.1% 4.4%
10.3%
1.3%
7.1%
4.0%
2.0%
10.3%
5.7%
-10%
-5%
0%
5%
10%
15%
SouthAfrica
Brazil Vietnam Turkey Poland Russia Mexico* China SouthKorea
Q3 2013
Q3 2015
Q3 2017
40
42
44
46
48
50
52
54
56
58
60
-20
0
20
40
60
80
100
120
140
160
09Q4 10Q4 11Q4 12Q4 13Q4 14Q4 15Q4 16Q4 17Q4
Capital flows (lhs)
Domestic credit conditions (rhs)
50-threshold
16
Insolvencies: Come as you are, but big is not beautiful
Source: Euler Hermes
Good growth momentum (Europe and North America) means less insolvencies. Less good momentum took its toll in Emerging Markets
EH Global and Regional Insolvency Indices(yearly change in %)
Majors failures surged, e.g. +32% in Western Europe to 101 units representing a cumulative turnover of EUR21.4bn (vs EUR 9.8bn in 2016)
(*) Companies with a turnover exceeding EUR50mn Source: Euler Hermes
Major failures* in Western Europe 2017 as of Q3 YTD(number of companies, by size of turnover in million of EUR)
17
Agenda
1 Global themes: Walking on the moon
2 Regional outlooks: What to watch in the US, Europe, China and Emerging Markets
18
US: Both the Senate’s and House’s version of the fiscal reform would add USD 1.4 tn of debt
The net effect on budget could be less devastating taking into account the acceleration of growth…
Sources: Joint Committee of Taxation, Euler Hermes
Federal budget balance as % of GDP (fiscal year data)
However, a certain pessimism on the size of this growth impact means further accumulation of debt compared to current legislation
Sources: IHS, Euler Hermes, Allianz Research
Arguments of those seeing low impact on growth of the US fiscal reform
• Static impact: increase of USD 1,4 trillion of the US debt• Dynamic impact on growth produce USD 458 bn of fiscal
revenues• Fed reaction’s tightening policy would impact growth and
reduce fiscal revenues by USD 51 bn• Total net impact of fiscal reform on US debt: USD 1 trillion
at the horizon of 2018-27 Taxation expects
• Muted domestic demand, resulting from insufficientlyredistributive fiscal policy
• Profit repatriation is expected to nurture dividendsand share buybacks
• Potential of growth unlikely to be sufficientlyimpacted if individual tax cuts are not permanent: nosustained increase in labor supply
• Companies with higher effective tax rates, likely tobenefit more from the reform, have relatively lowerinterconnections with the rest of the economy
• The private equity industry and fiscal advantages ofprivate activity bonds could be penalized by thereform, what could significantly hamper infrastructureprojects
• The reform could have a negative impact onresidential investment
2018 2019 2018-22 2018-27
Conventional estimate -38,4 -224,5 -926,3 -1414,2
Effects resulting from macro analysis 9,9 35,7 238 407,5
Net Total -28,5 -188,8 -756,8 -1006,7
Estimated budget effects of possible tax reform proposal (USD bn)
-12
-10
-8
-6
-4
-2
0
2
4
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Actual Forecast
19
1.6
2.2
1.7
2.6
2.9
1.5
2.3
2.6
2.2
0
1
2
3
4
2011 2012 2013 2014 2015 2016 2017 2018 2019
US: Further growth acceleration in 2018 – some loss of momentum in 2019
Fiscal policy expected to add 0.2 to 0.4pp to growth in 2018/19 via tax relief, but higher interest rates will act as a counterbalance…
… as the Fed likely will progressively hike ratesto avoid overheating. The unemployment rate isalready below the level generating inflation.
Unemployment rate (%)
Sources: Euler Hermes, Allianz Research
GDP growth(y/y, %)
Sources: Datastream, Federal Reserve, Euler Hermes, Allianz Research
20
Eurozone: Private consumption continues to power the upswing in 2018/19 while export growth tapers off
Private consumption to remain relatively resilient supported by favorable labor market outlook and only a modest rise in inflation
Eurozone export growth looks set to cool in2018/19 in line with a weakening of globaltrade
Sources: Thomson Reuters Datastream, Euler Hermes, Allianz Research Sources: Thomson Reuters Datastream, Euler Hermes, Allianz Research
Private consumption (y/y, in %) Exports (y/y, in %)
21
The ECB will keep financial conditions favorable
Sources: Allianz Research, Euler Hermes, Datastream
ABSPP: Asset-Backed Securities Purchase Program; CBPP3: 3rd
Covered Bond Purchase Program; CSPP: Corporate Sector Purchase
Program; PSPP: Public Sector Purchase Program
Sources: Allianz Research, Euler Hermes, ECB
ECB balance sheet, total assets (EUR bn) ECB redemptions/reinvestments (EUR bn, after November 2017 ECB forecasts)
The ECB to end asset purchases in October 2018, keep assets level unchanged thereafter and deliver first rate hike in 2019Q2.
The ECB will need to keep buying bonds after October 2018 in order to replace matured bonds.
22
Sharp upward trend in business expectations signals robust upswing to continue
Germany: The boom goes on, with real GDP expanding by 2.6% in 2017 and by 2.5% in 2018
Ifo index: Manufacturing (2005=100)
Above-average and rising capacityutilization finally translates into higherinvestment spending
Source: Thomson Reuters Datastream Sources: Thomson Reuters Datastream, Allianz Research
Capacity utilization* (manufacturing, %) and investment (chain index, sa)
* Dotted line: Average since 1990
23
France: Investment is booming and sectors are in-sync
Industry: Manufacturing confidence increased to its best level since 2001.
The service sector is also accelerating andwholesale trade expected activity outlook is thebest one since September 2000.
France: Wholesale trade
Sources: IMF, Euler Hermes, Allianz Research
France, manufacturing: Confidence and production
Sources: Euler Hermes, Allianz Research
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
07 08 09 10 11 12 13 14 15 16 17
Activity outlooks for the next three months
Expected workforce evolution in the next three months
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
60
70
80
90
100
110
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Manufacturing confidence Index (left)
Manufacturing production index (YoY,3-months moving average, right)
24
Italy: Economic recovery finally gaining traction (1.6% in 2017 & 1.3% in 2018) but structural weaknesses will limit cyclical upswing
2017 GDP growth rate highest since 2010thanks to ongoing recovery in domesticdemand and favorable export demand
But structural problems still loom large: Toexit the low-growth/high-debt/fragile-bankstrap Italy is in dire need of more reform
Sources: Istat, Thomson Reuters Datastream, Allianz Research
Italian GDP growth (y/y) & business confidence
Potential GDP (%)
Sources: European Commission, Thomson Reuters Datastream, Allianz Research
25
Italian elections likely to bring ‘more of the same’: Rising political fragmentation bodes ill for political stability and reform
Political fragmentation bodes ill for politicalstability and economic reform outlook, butreduces odds of Italexit
Italexit is a tailrisk as it requires a long-lived,stable government but cannot be ruled outcompletely given Italy‘s inability to reformand growing euro-fatigue
Sources: Istat, Ipsos Thomson Reuters Datastream, Allianz Research
Coalition games – based on Ipsos poll (November)
FI: Forza Italia; Fdl: Fratelli d’Italia; LN: Lega Nord; PD: Partito Democratico; AP/CP: Alternativa Popolare; M5S: Movimento 5 Stelle
Parliament approves changes to the Constitution (Art. 75 prohibits referendums on internal treaties)
If a qualified majority is not reached, the government has to confirm the constitutional changes via a referendum.
If a majority votes „yes“, the Italian constitution can beamended.
The Italian government calls a referendum on euro (and/or EU)-membership.
A majority votes in favor of exiting the Eurozone/European Union
Path to Italexit
26
GBP/EUR (lhs) & export prices index (2013 =100, rhs)
External sector not making up for slowing domestic demand with exporters responding to weak Sterling by raising export prices putting profit before volume
Headline inflation, retail price inflation, core inflation & compensation per employee (y/y, in %)
UK consumers face double-whammy blow: High inflation and sluggish wage growth put a squeeze on living standards
Sources: Thomson Reuters Datastream, Allianz Research. Sources: Thomson Reuters Datastream, Allianz Research.
UK: GDP growth will slow to +1.5% in 2017 and +1.0% in 2018 in line with cooling domestic demand
27
China #1: Taming risks
Financial risk: macro-prudential measures bring some improvement
Financial risks indicators
Over-capacity: Efforts to cut excess Capacity bear fruit with continued producer reflation
Capital flows (and currency) get back under control with tighter regulation
Producer prices and Investment in mining
-300
-250
-200
-150
-100
-50
0
50
100
150
200
250
12 13 14 15 16 17
Resident capital outflows
Non resident capital inflows
Net capital flows plus errors andomissions
Net capital flows
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
115
125
135
145
155
165
175
11 12 13 14 15 16 17
Credit to Non-FinancialCorporations (% GDP, left)
Non-performing loans ratio(right)
-40
-30
-20
-10
0
10
20
30
40
12 13 14 15 16 17
Producer prices inmining (y/y)
Urban Investment inmining (YTD y/y)
Sources: IHS, Euler Hermes, Allianz Research
28
China #2: Building (future) growth foundations
Rebalancing: domestic demand/services growth remain firm and well oriented
Consumer and business survey (3 months rolling average)
Upgrading: efforts to modernize and improve productivity are accelerating
Connecting: Belt and Road initiative enlarge exports opportunities
Robots sales (units) Share in China’s total goods exports
52
53
53
54
54
55
55
56
56
57
95
100
105
110
115
120
125
14 15 16 17
Consumer Confidence Index(left)
Non Manufacturing PMI official(right)
0
20000
40000
60000
80000
100000
120000
140000
2015
2016
2017f
16%
18%
20%
22%
24%
26%
28%
30%
05 06 07 08 09 10 11 12 13 14 15 16 17
United States
BRI countries
Sources: IHS, IFR, Euler Hermes, Allianz Research
29
China #3: Preparing for turbulences
Turbulence #1: More difficult access to financing as monetary policy tightens
Domestic credit growth
Turbulence #2: Operating pressure for credit intensive sectors: construction related and heavy industries
Turbulence #3: Adverse impacts from SOEs restructuration
Construction and related sectors (real value added growth)
0
2
4
6
8
10
12
12 13 14 15 16 17
Real Estate services (y/y)
Construction (y/y)
Industry (y/y)
0
5
10
15
20
25
30
35
05 06 07 08 09 10 11 12 13 14 15 16 17
Policy rate assumption (year end) :2017: 4.352018: 4.602019: 4.85
Debt level
Corporate performance
Share of total
Leverage ratio*
Return on
assets
Total corporate debt 100.0
Private enterprise 43.0 98.0 5.9
State Owned 57.0 181.0 2.6
Zombie firms** 5.00 346.0 -5.9
* leverage ratio is measured by total liabilities total owners' equity
** State council definition
SOEs snapshot
Sources: IHS, Euler Hermes, Allianz Research
Sources: IHS, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz ResearchSources: IMF Working paper “Resolving China’s Zombies: Tackling debt and raising productivity
30
Asia-Pacific: Solid growth expected
Regional economic growth to remain firm at +4.8% in 2018, underpinned by firm growth in China, Japan and stronger performance in India; and solid export performance.
Asia-Pacific* USD denominated exports (%, 3mo y/y)
** Fiscal year
Asia Pacific: country risk and economic growthgrowth in 2018 in light grey
Japan
A1
China
B2
Hong Kong
A2
Taiwan
A2
Thailand
B1
South Korea
BB1
Malaysia
BB2
Singapore
AA2
Indonesia
B1
5.3%
AustraliaAA1
Philppines
B1India
B1
Low risk
Medium risk
Sensitive risk
High risk
APAC: 4.8%
ASEAN-6*
1.2% 3.0%
2.7% 2.6%
2.6
2.6%
New ZealandAA1
6.4%
6.8%
7.3%**
3.6%
5.0%
2.9%
5%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
01 03 05 07 09 11 13 15 17
*China, Japan, South Korea, Hong Kong, Taiwan, India, ASEAN-6, Australia, New-Zealand
Sources: IHS, Euler Hermes, Allianz Research Sources: IHS; Euler Hermes, Allianz Research
31
2017 2019
2017 2019
2017 2019
2017 2019
2017 2019
2017 2019
2017 2019
2017 2019
2017 2019
A2
B3
D4
Brazil
Venezuela
Argentina
Chile
BB1Peru
Colombia
BB2 Mexico
C4 Ecuador
BB2Uruguay
3.2%2.9%
3.2% 2.8%
2.5%1.1%
1.6%2.8%
2.6%
3.8%
0.7% 1%
BB2
1.6%2.7%
2.1% 2.4%
-8.0%
-4.1%
C3
2017 2018 2019
2.0%
3.1%
1.7%
3.8%
3.2%
3.0%
2.8%
3.0%
-1.4%
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
2017 2018 2019
Latin America: Ready for take-off, with +1.4% growth in 2017, +2.4% in 2018, +2.8% in 2019
Regional activity accelerates as nationalgrowth rates converge. (Geo)politicaluncertainty still drags growth down.
For the first time in 4 years, bank lendingconditions have eased in Latin America in Q32017 and are projected to ease further
Latin America: IIF Bank Lending Survey
Sources: IMF, Euler Hermes, Allianz Research
Country risk and economic growth in 2017, 2018 and 2019
Sources: IIF; Euler Hermes, Allianz Research
An index > 50 means credit conditions are easing
< 50 means credit conditions are tightening
Low risk
Medium risk
Sensitive risk
High risk
As of Q4-2017
52.9
57.0
35
40
45
50
55
60
65
70
Q110
Q3 Q111
Q3 Q112
Q3 Q113
Q3 Q114
Q3 Q115
Q3 Q116
Q3 Q117
Q3
IIF Forecasts
32
Source: National sources, IHS, Euler Hermes
Emerging Europe: After strongly accelerating in 2017, regional growth will remain robust in 2018
GDP growth in 2017 and 2018 (forecast) and short-term country risk as of Q4 2017
The region as a whole is forecast to grow +3% in 2018 (after +3.7% in 2017), with EU members rising by an average +3.7%, while Russia will post a more modest +1.9%. Monetary policy set to diverge in 2018 between EU members (gradual tightening) and Russia (further easing)
Sources: National sources, IHS, Euler Hermes
Monetary policy interest rates
33
Middle East and Africa: Growth should be up, but that’s not a green light
Shades of Africa & Middle East: Reforms arepaying off in Egypt, growth to recoverprogressively in Nigeria and South Africa.
Source: Bloomberg, Euler Hermes, Allianz Research
Middle East & Africa: country risk and economic growthgrowth in 2018 in light grey
Sources: Bloomberg, Euler Hermes, Allianz ResearchSources: WorldBank, Euler Hermes
But the commodity price shock has drivenexternal debt higher (but no to 2002peaks), weighing on small economies.
Yemen
Sub-Saharan Africa aggregate and country-level external debt (as % of GDP)
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Ang
ola
Ben
in
Bur
kina
Fas
o
Cam
eroo
n
CA
R
Cha
d
Con
go
Egy
pt
Eth
iopi
a
Gab
on
Gui
nea
Gha
na
Gam
bia
Ken
ya
Mal
i
Mal
awi
Mad
agas
car
Moz
ambi
que
Nig
er
Nig
eria
Sen
egal
Rw
anda
Sou
th a
fric
a
Tan
zani
a
Uga
nda
Zim
babw
e
Zam
bia
2000
2017
0
10
20
30
40
50
60
70
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Though far from 90's peaks, External debt (% of GDP) is on upward trajetory again
Thank you for your attention!Economic Research DepartmentEuler Hermes Group1 place des Saisons92048 Paris La Défense Cedex FrancePhone: +33 01 84 11 50 [email protected]/economic-research
This material is published by Euler Hermes SA. a Company of Allianz. for information purposes only and should not be regarded asproviding 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 ownindependent evaluation of this information and no action should be taken. solely relying on it. This material should not be reproduced ordisclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst thisinformation is believed to be reliable. it has not been independently verified by Euler Hermes and Euler Hermes makes norepresentation or warranty (express or implied) of any kind. as regards the accuracy or completeness of this information. nor does itaccept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on. thisinformation. 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 inNanterre (552 040 594).Euler Hermes SA is authorized and regulated by the Financial Markets Authority of France.
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