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GLOBAL ECONOMIC OUTLOOK:
POLITICAL RISKS AND THE INDUSTRY
CYCLE CAN BOTH BE BLAMED FOR
THE DOWNTURN
JULIEN MARCILLY
CHIEF ECONOMIST
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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