2017 global economic outlook by dun & bradstreet

Dun & Bradstreet’s Global Economic Outlook 2017 and

BeyondMaking Sense of the New World

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November 2016

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Western Europe

AgendaNorth America

Latin America

Asia-Pacific

The Top Five Economic Game Changers

Short-Term Economic Outlook (G20)

Introduction: A Global View of Risks

Eastern Europe and Central Asia

Middle East and North Africa

Introduction: A Global View of Risks

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An Unprecedented Recession, Hence Global Risks Remain Elevated Seven Years After It Ended …

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

Source: Dun & Bradstreet1510050095908580

6

4

2

0

-2

6

4

2

0

-2

World: Gross Domestic Product, Constant PricesAnn % Chng [Mkt Exch Rates]

Source: International Monetary Fund /Haver AnalyticsQ3 1994

Q3 1995

Q3 1996

Q3 1997

Q3 1998

Q3 1999

Q3 2000

Q3 2001

Q3 2002

Q3 2003

Q3 2004

Q3 2005

Q3 2006

Q3 2007

Q3 2008

Q3 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

Q3 2015

Q3 20160

10

20

30

40

50

60

70

80

90

100

North AmericaLatin AmericaAsia PacificEastern Europe and Central AsiaWestern & Central EuropeMiddle East and North AfricaSub-Saharan Africa

6

In Fact Risk Has Increased Globally, As Measured by the D&B Country Risk Score

Source: Dun & Bradstreet

July 2009 Oct 2016


7

D&B’s Top Risks Facing the Global Economy …

Region Risk Likelihood (%)

Global Impact (1-5)

Global Business Impact

Score (1-100)

North America

Global uncertainty among policy-makers, businesses and households over the lack of detail in President-elect Trump's policies curtails business activity in the US as well as global cross-border trade and investment prospects

70 3 42

Western Europe

Hard Brexit will lead to the disruption of supply chains in Europe

65 3 39

Asia-Pacific

In China, default contagion from bad debts in industry and local government triggers state rescues for mid-tier banks

50 3 30

Pan-regional

Rapidly growing cyber-dependence and connectivity lead to increasingly frequent and more damaging cyber attacks, with global ramifications

70 2 28

North America

Congress has little appetite for trade deals, while new President keeps election promise. TPP and TTIP are scrapped and NAFTA is renegotiated

70 2 28

Pan-regional

Deal between the EU and Turkey eventually collapses, thereby leading to a renewed migrant crisis in Western Europe

45 3 27

The latest Dun & Bradstreet Global Business Impact score highlights a further worsening of risks for businesses across the world. The nature of risk is continues to change, with four new entries among our top ten risks led by the pervasive political uncertainty in the US and the UK.

Global Business Impact Score

Q3 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

200

225

250

275

300

274

226

265

283

272

250

254 260

231 230

235

243

281



8

… Drive Our Forecast for Slow, Middling Growth



Real GDP Growth (%)

2014 2015 2016 2017 2018 2019 2020 2021

World 2.6 2.4 2.2 2.7 3.0 3.1 3.1 3.1

Advanced economies 1.8 2.0 1.6 1.8 2.1 2.1 2.1 2.1

US 2.4 2.4 1.6 2.0 2.3 2.2 2.0 1.9

Euroland 1.0 1.6 1.6 1.5 1.9 2.1 2.3 2.5

Japan 0.0 0.5 0.5 1.0 1.5 1.0 1.0 1.0

UK 3.1 2.2 1.8 0.7 1.1 1.3 1.5 1.7

Emerging economies 4.2 3.3 3.3 4.2 4.6 4.8 4.7 4.7

Brazil 0.1 -3.8 -3.4 0.9 1.5 2.0 2.1 2.3

Russia 0.7 -3.7 -0.6 1.3 1.4 1.5 1.5 1.6

India 7.2 7.6 7.5 7.9 8.0 8.0 8.0 7.2

China 7.3 6.9 6.5 6.0 5.8 6.0 5.5 5.1

Short-Term Economic Outlook

10

Short-Term Economic Outlook


Short-term Economic OutlookLong-term Economic Potential

Market Potential

FX Risk

Transfer Risk

Business Regulatory Environment

Business Continuity

Political/Insecurity Risk

Expropriation/ Nationalisation Risk



Short-Term Economic Outlook (January 2012)Short-term Economic Outlook

Long-term Economic Potential

Market Potential

FX Risk

Transfer Risk


Business Continuity






Market Potential

FX Risk

Transfer Risk


Business Continuity




Short-Term Economic Outlook (October 2016)Short-term Economic Outlook


Market Potential

FX Risk

Transfer Risk


Business Continuity



Western Europe

Brexit


Economic Baseline Figures

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Real GDP (Forecast)Real GDP (Actual)

Source: Office for National Statistics, Dun & Bradstreet

Perc

ent

• Some metrics of economic performance that the fundamentals of the economy are solid: for example, domestic output expanded by 0.5% quarter on quarter in Q3.

• Inflation is also gradually picking up on account of a cheaper pound (albeit remaining well below the Bank of England’s medium-term target of 2%).


Key Economic Indicators • Retail trade growth accelerated

over the quarter.

• Markit/CIPS’s UK Construction PMI tallies with the suggested strengthening of momentum in the sector.

• Overall, forward-looking indicators also bode well for future economic activity, with Markit’s Purchasing Managers’ Index (PMI) for the manufacturing sector rising to its highest level since mid-2014.


Business Failures

Dun & Bradstreet data for Q3 show a drop in the amount of corporate insolvencies: some 14% lower than the preceding quarter, possibly tracking the resilience of the economy, which expanded more than previously anticipated in the three months to September.


Prompt Payment Snapshot

Despite stronger-than expected real GDP growth in Q3, a weaker pound, and robust retail sales, Dun & Bradstreet’s data reveals that the proportions of prompt payments decreased slightly over the quarter.


Despite the current economic bonanza, Dun & Bradstreet predicts that Brexit’s medium- to long-term economic impact on the UK will be significant and negative.

We have downgraded the country’s risk rating from DB2c to DB2d (still just within the ‘low risk’ category). We are also maintaining our ‘deteriorating’ rating outlook.

Prime Minister Theresa May’s government intended line of action likely to make it increasingly unlikely that the UK will retain access to the EU’s common market once Brexit is eventually completed.

The possible loss of the passporting rights that currently allow UK-based banks to operate across the EU is a major source of concern.

o Brexit could take a heavy toll on the UK’s financial sector: up to 70,000 finance industry jobs could be lost if Britain leaves the EU, according to the industry body TheCityUK.

Several other UK-listed companies, are being affected by a weaker pound.


The Baseline Scenario

• Parliament will approve Article 50 invocation• PM invokes Article 50 in Q1 2017• EU membership ends Q1 2019• However: transition deal required post Q1 2019• Hence: EU laws likely to remain in force until early 2020s• After that: Free Trade Agreement

The E.U.


The economic outlook is improving:

There is reason to believe that the economy is switching into a slightly higher gear in the final months of the year;

Inflation rates remain low, albeit rising, real wage growth is still robust, and the labour market also continues to provide good news…

… However, political risk is rising:

Upcoming elections in the Netherlands, France and Germany in 2017, in addition to Brexit.

Weak minority government in Spain in October 2016 and the prospect of government collapse over the outcome of a referendum in November in Italy.

The outcome of US presidential elections could bolster consensus for anti-EU parties.

North America


North America Also Stuck In the New Mediocre

2014 2015 2016E 2017F 2018F 2019F 2020F 2021F

US 2.4 2.6 1.6 2.0 2.3 2.2 2.0 2.0

Canada 2.5 1.1 1.4 2.1 2.3 2.0 2.1 2.1

Q1-2013

Q2-2013

Q3-2013

Q4-2013

Q1-2014

Q2-2014

Q3-2014

Q4-2014

Q1-2015

Q2-2015

Q3-2015

Q4-2015

Q1-2016

Q2-2016

Q3-2016

-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.55.0

GDP, topline Consumption

New Government’s Policies Will Aim to Add More Drivers of Growth


… But Long Term Metrics Also Important

19401944

19481952

19561960

19641968

19721976

19801984

19881992

19962000

20042008

20122016

20202024

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Federal Debt Held by the Public, % of GDP

19661969

19721975

19781981

19841987

19901993

19961999

20022005

20082011

20142017

20202023

2026-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

Total Deficit/Surplus, % of GDP

Average Deficit, 1966 to 2015=2.8%

Sources: Congressional Budget Office, Dun & Bradstreet


Canada: Some Domestic Clarity…

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150%

50%

100%

150%

200%

250%

Canada: Government Debt as Percentage of GDP (%)U.S.: General Government Debt Outstanding as a % of GDP (%)U.K.: General Government Outstanding Debt as a % of GDP (%)Italy: General Government Debt Outstanding as a % of GDP (%)Australia: General Government Outstanding Debt as a Percentage of GDP (%)Japan: General Government Debt as a Percentage of GDP (%)France: General Government Debt as a Percentage of GDP(%)

Source: Statistics Canada, Bureau of Economic Analysis, Office of National Statistics , Banca d’Italia, Australian Bureau of Statistics, Bank of Japan, Banque de France

Germany

U.S.

EA 19

France

U.K.

Canada

Australia

0% 50% 100% 150% 200% 250%

89.5%

100.1%

103.8%

105.9%

133.4%

159.9%

193.7%

Household Outstanding Debt to Gross Disposable Income (Q2 2016)

Source: Statistical Offices of the European Communities, Federal Reserve Board, Statistics Canada, Australia Bureau of Statistics


…but International Uncertainty Reigns• An impasse regarding the implementation of the Canada and European Union Comprehensive Economic Trade Agreement (CETA) has been resolved.

• Despite the compromise, the treaty still requires ratification

by all national and regional parliaments of EU member nations.

• High levels of doubt surround the longevity of the North American Free Trade Agreement (NAFTA)

• Enactment of Article 2205 remains in the realm of possibility.

• Official withdrawal only six-months after notice is given.

Eastern Europe and Central Asia


Eastern Europe & Central Asia: Key Issues

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

f

2017

f

2018

f

2019

f

2020

f

2021

f

-8%

-4%

0%

4%

8%

12%

-60%

-40%

-20%

0%

20%

40%

60%

Regional growth is strongly correlated with oil prices…

GDP growth y/y Oil price growth y/yGDP growth y/y (Forecast) Oil price growth y/y (Forecast)

Source: Haver Analytics, Dun & Bradstreet

Structural impediments continue to hamper the region's business environment…

Source: World Economic Forum Global Competitiveness Report 2016-2017, Transparency International Corruption Perceptions Index 2015, Dun & Bradstreet

Regional ranking

Infrastructure Quality 71 [out of 138]Property Rights 84 [out of 138]Business Impact of Rules on FDI 85 [out of 138]Corruption 91 [out of 168]


Eastern Europe & Central Asia: Risks & Opportunities

Risks

FX Risk: Brexit and Trump-related uncertainties continue to weigh on emerging market assets and currencies throughout 2017

High probability

Business Regulatory Environment: Deteriorating government finances (due to lower-for longer oil prices) lead to hikes in business taxes and reductions in financial incentives for foreign investors

Moderate probability

Political/Insecurity Risk: Escalating geopolitical tensions between Russia and the West prompt a direct conflict

Low probability

Opportunities

Market Potential: Brexit and Trump presidency could mean Western sanctions on Russia eased in 2017 - opening up opportunities for exporters and investors in the energy, defence and financial sectors

Moderate probability

Market Potential: Lower-for-longer oil prices drives economic diversification and funnels government investment into nascent sectors with promising long-term potential, e.g. agriculture and renewable energy

High probability

Long-Term Economic Potential: Lower-for-longer oil prices prompts governments to undertake significant structural reforms

Low probability

Latin America


Latin America – Subdued Outlook

Sources: Haver Analytics, Dun & Bradstreet

Drivers Risks

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f 2019f 2020f 2021f-2.0

0.0

2.0

4.0

6.0

8.0Latin America & Caribbean World

Real

GDP

Gro

wth

(%)

Gradual recovery in commodity pricesHigher capital inflowsFirmer external demandLooser domestic monetary policy Pro-business reforms

- Disappointing recovery in key trade partners- Protracted weakness in export prices- Austerity backlash = hiked political risks- Tighter global liquidity (US Fed Funds Rate)- New uncertainties: Brexit; radical US trade policy

shifts


Key RecommendationsAssess the impact of potential changes in US trade and immigration

policies on exports of agriculture (South America) and manufactured goods (Mexico) as well as remittance inflows (Mexico, Central America).

Follow Brexit-related developments vis-à-vis changes to UK and EU market access. Watch for new bilateral trade deals in the wake of Brexit but expect delays in finalization of agreements.

Monitor leading currencies' volatility against the dollar. Hedge foreign exchange risks, where possible.

Ensure compliance with anti-corruption laws to minimize reputational risk.

Expect ongoing challenges with bureaucracy, inadequate infrastructure and corruption.

Asia-Pacific

37

Ireland 2010

Indonesia 1998

Spain 2007

Thailand 1997

Argentina 2002

China 2016

Malaysia 1997

Japan 1990

UK 1990

Greece 2007

Portugal 2009

South Korea 1997

US 2007

88

57

44

36

33

30

28

24

24

22

21

14

12

Credit to GDP ‘gap’ % GDP greater riskSources: BIS, Dun &

Bradstreet


Financial Cycle: China &Asia-Pacific

greate

r risk

of finan

cial

secto

r dist

ress,

recessi

on or cris

is


Demographic Divergence Across Asia

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

-1.0-0.50.00.51.01.52.02.53.03.54.0

ChinaWorking Age Total PopulationLabor Force

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

-1.5

-1.0

-0.5

0.0

0.51.0

1.5

2.0

2.5

3.0

JapanWorking Age Total PopulationLabor Force

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

0.0

0.5

1.0

1.5

2.0

2.5

3.0

IndiaWorking Age Total Population

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

-1.0-0.50.00.51.01.52.02.53.03.5

East AsiaWorking Age Total Population

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Southeast AsiaWorking Age Total Population

Source: UN, National Statistical Agencies

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

ThailandWorking Age Total PopulationLabor Force

Middle East and North Africa

40

Three Layers Undermine the Regional Outlook


Oil PricesInsecurity

Structural Issues


2013 2014 2015 2016f 2017f 2018f 2019f 2020f 2021f0

20

40

60

80

100

120

108.9

98.9

52.4

43.150.2

63.068.0

79.085.0

Source: World Bank, Haver Analytics, Dun & Bradstreet

USD/

bbl.

Average Annual Oil Prices

42

Insecurity: MENA’s Security Risks Late 2010



43

Insecurity: MENA’s Security Risks Late 2016



44

Structural Issues


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

The Top Five Economic Game Changers

1. Blockchain Technology


What is Blockchain?

Blockchain or ‘distributed ledger technology’ is a way of electronically storing information that is or can be:

a) Immutable (the parties involved cannot change information that has been

stored previously)

b) Allows real time clearing (if the information tracks the movement of a real-

world unit, that unit’s whereabouts and status will be recorded in real time)

c) Universally accessible and transparent

d) Protection is enabled by cryptography rather than a centralised authority Some of this is (still) somewhat idealistic as the technology is not impervious to being hacked (Mt Gox/Ethereum thefts)


What are the Possible Applications? Trade finance Banking Mining Credit ratingsStock exchange platforms Fraud detection Healthcare Utilities Real estate Intellectual propertyand many more


Where are We Now? Development of international standards underway

Recent Blockchain trade finance milestone

Australian Stock Exchange

Surveys on expected time of adoption show that a majority of banks expect to use a blockchain-based technology by 2019.

Industries that are not heavily regulated have a smoother path to adoption – e.g. diamonds industry.


Stumbling Blocks

General: vulnerable to rumours/scandals; resistance from stakeholders who risk

becoming superfluous; needing to replace existing processes

and platforms.

Particular to blockchain:Security;Privacy;Cooperation;Data bloat.

Images are open source

2. Decarbonization


Renewable Growth Capacity has Exploded Over the Prior 15 years

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

100000

200000

300000

400000

500000

600000

700000

800000

Cumulative installed geothermal power capacity Cumulative installed photovoltaic (PV) power Cumulative installed wind turbine capacity

Source: BP, Dun & Bradstreet

Meg

awatt

s


But the Current Share Remains Low

Renewable: (6.9%)

Carbon producing: (86.8%)

Nuclear: (6.2%)

Renewable: (6.8%)


Nuclear: (5.7%)

Renewable: (7.8%)


Nuclear: (5.1%)Renewable: (9.6%)

Carbon producing:(86.0%)

Nuclear: (4.4%)


Where Is Progress Being Made?

Source: BP, United Nations, Dun & Bradstreet


Tonnes Carbon Dioxide per Person

Top 21 countries by nominal size of GDP (USD)

0

5

10

15

20

25

19.8

17.0 16.7

14.8

12.9 12.4

10.39.5 9.3

6.8 6.7 6.3 5.74.8 4.7 4.4 4.3 3.7

2.4 2.31.7

2015-Tonnes Carbon Dioxide per Person

Source: BP, United Nations, Dun & Bradstreet

3. Cyber Security


National strategy

Incident response

E-crime & law enforcement

Information sharing

R&D Investment

Diplomacy & trade

Defense & crisis response

Source: Lloyd’s City Risk Index (http://www.lloyds.com/cityriskindex/threats/cyber_attack)

Source: Melissa Hathaway, Chris Demchak, Jason Kerben, Jennifer McArdle, and Francesca Spidalieri (www.potomacinstitute.org/academic-centers/cyber-readiness-index)

Internet/Cybersecurity Risks

Unknown or zero readiness

Partialreadiness

Fullreadiness

4. Deglobalization


Strengthening of Shift Towards Less Free Trade

20092010

20112012

20132014

2015

mid-Oct

14 to m

id-May

15

mid-May

15 to m

id-Oct

15

mid-Oct

15 to m

id-May

1610

12

14

16

18

20

22

19

14

18

17

18 18 18

17 17

21

G20 Trade-Restrictive Measures on the Rise (average per month)

Sources: WTO, Dun & Bradstreet

5. Negative Interest Rates


Negative Interest Rates Are A Part of the New Normal

201201

201203

201205

201207

201209

201211

201301

201303

201305

201307

201309

201311

201401

201403

201405

201407

201409

201411

201501

201503

201505

201507

201509

201511

201601

201603

201605

201607

201609-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

Policy Rates, %

ECB Denmark Sweden Switzerland Japan

Sources: Central Banks, Dun & Bradstreet


Q A

63

Connect with the team


D&B’s Country Insight 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]

Jas Sehmi Eastern Europe & Central Asia [email protected]

Warwick Knowles Middle East & North Africa [email protected]

Isaac Leung Asia Pacific, Sub-Saharan Africa [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]

Nalanda Matia North America [email protected]

Daniele Fraietta Western Europe [email protected]

Markus Kuger Western Europe [email protected]

Ben Kleber Western Europe [email protected]











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