Superheroes, sidekicks and villains - Euler Hermes · wish as Superman, Batman or the Hulk ... are superheroes, sidekicks and villains are going through the ... lack in stamina, they

Macroeconomicand Country Risk Outlook

EconomicOutlook no. 1232January 2017

www.eulerhermes.com

Superheroes, sidekicksand villainsThe Guardians of the economy

Economic Research

Economic Outlook no. 1232 | January 2017 | Macroeconomic and Country Risk Outlook Euler Hermes

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Economic Research Euler Hermes Group

Economic Outlookno. 1232Macroeconomicand Country Risk Outlook

Contents

The Economic Outlook is a monthlypublication released by the EconomicResearch Department of Euler HermesGroup. This publication is for the clientsof Euler Hermes Group and available onsubscription for other businesses andorganizations. Reproduction is authorised,so long as mention of source is made.Contact the Economic Research Depart-ment Publication Director and Chief Eco-nomist: Ludovic Subran Macroeconomic Research and CountryRisk:Ana Boata, Stéphane Colliac, AlbertoGonzález de Aledo Pérez, MahamoudIslam, Dan North, Daniela Ordóñez,Manfred Stamer (Country Economists)Sector and Insolvency Research:Maxime Lemerle (Head), Farah Allouche,Yann Lacroix, Marc Livinec, Didier Moizo(Sector Advisors)Support: Laetitia Giordanella (OfficeManager), Ilan Goren (Content Manager),George Kibala Bauer, Benedetta Scotti(Research Assistants)Editor: Martine BenhadjGraphic Design: Claire Mabille Photo credits: Images courtesy of Allianz,Images courtesy of Pixabay (public do-main under Creative Commons CC0),Images courtesy of flickr.com under CC2,image courtesy of nasa unsplash.com un-der CC0For further information, contact theEconomic Research Department of EulerHermes Group at 1, place des Saisons92048 Paris La Défense Cedex – Tel.:+33 (0) 1 84 11 50 46 – e-mail: [email protected] > Euler Her-mes Group is a limited company with aDirectoire and Supervisory Board, with acapital of EUR 13 645 323, RCS Nanterre552 040 594 Photoengraving: Talesca Imprimeur deTalents – Permit January 2017; issn 1 162–2 881 ◾ January 17, 2017

11 The emerging Fantastic Four will needsuperpowers to attract investors

11 Mr Fantastic (South Korea) will capitalizeon buffers

11 The Torch (Russia, India, Poland) will lightup growth prospects

11 Mrs. Invisible (Brazil, South Africa): No growth in sight, for now

12 The policy Thing (Turkey, Mexico) is weighing on growth

12 The X-Men: Big ticket items shaping 2017 and beyond

13 Price Wolverine to reflate the World Economy

13 (De)globalization: The end of the Magneto effect for trade and financialflows?

15 Policy nudges everywhere look like a perfect Storm

16 POLITICAL SEASONS AND POLICY NUDGES2017-2018

18 COUNTRY RISK LEVELS 2016

20 FIND US ONLINE

21 OUR LATEST PUBLICATIONS

22 SUBSIDIARIES

3 EDITORIAL

4 OVERVIEW

5 Unbreakable growth hits a glass ceiling

6 REGIONAL OUTLOOK

6 US Captain America: Flexing fiscalmuscles, picking trade battles

6 The rise of the fiscal Avenger

7 The monetary shield will be deployed faster

7 Protectionism: Beware of the Winter Soldierwhen it comes to trade

8 European Spider-Man: Agile policy-mix toprotect growth

8 Watch out the Sinister three: Brexit, theItalian banking sector, and general elections

9 Relying on policy web-shooters

9 The Chinese Iron Man is fine-tuning itspolicy battle suit

9 Calibrating policy weapons will be pivotal totemper negative externalities

10 Creating its own league to promote andfinance growth rebalancing

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Euler Hermes Economic Outlook no. 1232 | January 2017 | Macroeconomic and Country Risk Outlook

EDITORIAL

SuperpowersLUDOVIC SUBRAN

As much as we like to share the awe and wonder the globaleconomy has in store for economists, we have to spell outone harsh truth. 2017 will neither be MARVEL-lous, nor comic,nor super. But it may have more in common with those su-perheroes in Marvel’s comic books you used to read as achild. They have all matured into blockbuster movies andadult-size costumes and most likely invaded a supermarketnear you. Yet it is not too late if you haven’t yet indulged in such funreads. Sit back, download the movie (legally), dress up if youwish as Superman, Batman or the Hulk – we will no judgingyou - and enjoy. The Guardians of the Economy are here.Why is it important for you to rediscover your inner child?Why should you frolic along with your inner clown? Because around the G20 negotiation table, the UN AssemblyGeneral, the Eurogroup, and any other global forum, thereare superheroes, sidekicks and villains are going through themotions. Surprise! Fiction may, once again, be not that farfrom reality.Yes, they may have lost some speed and aura. But what theylack in stamina, they will be making up in malice. The realfun part is that they all want to use their superpower, at thesame time and without much coordination or afterthought.The results can be HUGE.Keep an eye for Captain America, the European Spiderman,the Chinese Ironman and the Fantastic Four of the emergingworld. 2017 promises to be quite a show. Sidekicks will at-

tempt to gravitate around superheroes, flexing their musclesand vivifying the masses. Villains will be looking for mistakesand causing mischief.From monetary shields to policy web shooters, from superresilience to shocks to the hyper flexibility of companies, su-per countries around the world - and their sometimes lesssuper policy-makers - will have to make full use of their su-perpowers to face another year of surprises. One must “Govern [them]selves with love, kindness, and serviceto others”, as Wonder Woman quipped. She was right. “Heroes are made by the paths they choose, not by the powersthey are graced with” Iron Man summarized. But when it comes for super quote that explains why policychoices will matter more than anything else Batman rules.“It's not who I am underneath...but what I do that defines me.”Wise words.After years of mutant economics, global growth will facethree of the most powerful X-Men. The price Wolverine, thetrade and finance (de)Magneto, and even more policyStorm(s). Reflation, de-globalization, and political risk areonce again running the show this year. Yet, the global stage could be quite secondary this year. Inthe end, the only kryptonite superheroes know are polls.

© Image courtesy of pixabay.com. Under CC0 Public Domain incredible-hulk-1710710com

+2.8%Expected global GDP

growth in 2017

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OVERVIEW

Superheroes, sidekicksand villainsThe Guardians of the economy

MACROECONOMIC AND SECTOR RESEARCH TEAMS


+ Global GDP growth is expected to end up at +2.5% in 2016,showing resilience in spite of the many economic and politicalhurdles. In 2017, growth should pick up to +2.8%, staying below+3% for the seventh consecutive year. + The US would benefit from a fiscal boost pushing growthto +2.4% in 2017. After a year of uncertainty and economicpause, the aftermath of the election is already bringingconfidence back. The active policy-making should spurprivate investment if political noise, tighter financingconditions, and renewed protectionism are contained.+ The Eurozone will grow +1.6% in 2017. It will continue toface its usual set of teething troubles from Brexit and theItalian banks situation to a busy election year in keycountries. Strong institutional stopgaps (accommodativemonetary policy, fiscal stimuli, and European programs) willhelp contain risks. + China will address its fragilities such as credit risk andexcess capacities to avoid volatility. Yet strong public supportand cautiously accommodative monetary policy will helpreach +6% growth this year. + In emerging markets, the absence of a broad-basedacceleration will increase selectivity. Private sector spendingwill be pivotal in some countries (e.g. Russia and India). Thebusiness cycle may be limited by ongoing adjustments inothers (Brazil and South Africa), while another group ofcountries may even face growing imbalances (Mexico,Turkey).+ Reflation, isolationism for trade and financial flows, addedto policy nudges will shape most of 2017-18 risks andopportunities for businesses around the world.

5


©image courtesy of JD Hancock, flickr.com under CC2, creativecommons.org/licenses/by/2.0

Sources: IHS, Euler Hermes forecasts

Unbreakable growth hits aglass ceiling

A series of unexpected events jeopardized globalgrowth in 2016: from the Chinese stock marketcrash in January, to the oil prices drop toUSD27/bbl in Q1, to the Brexit vote in June, to thebusy political scene in emerging markets, to theUS elections outcome in November. All defiedexpectations. Along with the rise in populist andprotectionist votes, global trade volume growthreached +1.9% in 2016, its lowest level since 2009.Yet various forms of global and local resiliencecame to the fore to offset the tremors and tur-bulences. World GDP growth did not collapseand is expected to finish the year at +2.5%. WithChinese GDP growth at +6.7%, UK growth at+2%, oil prices back above 50 USD/bbl, and stockmarkets scaling new peaks to reach record highspost Trump's election, things are not all bleak. In 2017, GDP is forecast to increase by +2.8%. Thisslight pick-up may be due to a large extent to theacceleration in the US, the exit from recession inRussia and Brazil, and the resilience in Europe andAsia. Yet, the diverging fate of the Four Musketeers(US, Europe, China, and the Emerging World) andthe possible dueling between them - as global-ization is deemed guilty of all woes - should keep

global growth below +3% for the seventh consec-utive year, a glass ceiling that has become harderto break, year after year.Indeed, the US and China could take a more ag-gressive stance on trade and investmentwhereas Europe will be keener on balancinggrowth and politics. Decision makers want tomake sure that European stopgaps and policy-making from the accommodative monetary pol-icy of the European Central Bank (ECB) to therecommended fiscal stimulus by the EuropeanCommission provide enough buffers againstthe pain points of 2017. And there are quite afew of those: elections in France, Germany andthe Netherlands, the everlasting Brexit route,the vulnerability of the Italian banking sector,will continue to make it to the headlines. As aconsequence, emerging markets will be makinga timid comeback as selectivity and home biaswill prevail. Such a cap on economic expansion could triggeran increase in business insolvencies (+1% in2017), the first since 2009. In 2016, insolvencieshave decreased by -2%, much slower than inthe past two years. Major increases in businessinsolvencies in 2017 are expected in Brazil(+15%), China (+10%), South Africa (+5%),Turkey (+5%), and the UK (+5%).

2015 2016 2017f 2018f

WORLD GDP GROWTH 2.7 2.5 2.8 2.8

United States 2.6 1.6 2.4 2.2

Brazil -3.8 -3.5 0.6 1.8

United Kingdom 2.2 2.0 0.9 0.6

Eurozone members 1.9 1.7 1.6 1.5

Germany 1.5 1.8 1.7 1.7

France 1.2 1.3 1.4 1.3

Italy 0.6 0.9 0.6 0.8

Spain 3.2 3.3 2.3 2.0

Russia -3.7 - 0.6 1.0 1.2

Turkey 6.1 1.3 1.0 2.0

Asia-Pacific 4.9 4.8 4.7 4.5

China 6.9 6.7 6.2 5.8

Japan 0.6 0.8 1.0 0.9

India 7.6 7.2 7.5 7.5

Middle East 2.1 2.1 2.2 2.6

Saudi Arabia 3.4 1.2 2.0 2.5

Africa 3.1 1.6 2.6 3.3

South Africa 1.3 0.5 1.5 1.5

* Weights in global GDP at market prices, 2016

Chart 1 Real GDP growth,annual change, %

Source: Euler Hermes

Full policyimplementation

10%

Partial policyimplementation

65%

Minor policyimplementation

25%

Tax cuts

Publicspending

Trade

Corporate tax to 15%Expensing of CapExover the first year and(presumed)disallowanceof interest expensesdeductibilityFull personal incometax cuts

USD1tn infrastructurespending over10 years

China: 45% tariffon goodsMexico: 35% tariffon goods,full withdrawalfrom NAFTA

Corporate tax cut from 35% to 15%, Expensing of CapExover the first yearand (presumed)disallowance ofinterest expensesdeductibility Partial personalincome tax cuts

USD0.5tninfrastructurespending over 10 years

China: 15% tariffon goods effective late H2 2017Mexico: start ofNAFTA renegotiation, some non-tariff barrierscould be implemented

Corporate tax to 15%Expensing of CapExover the first yearand (presumed)disallowanceof interest expenses deductibilityPartial personalincome tax cuts

USD0.25tninfrastructurespending over10 years

Chart 2: US policy baseline and alternative scenarios


Real GDP growth 2.7% 1.4% 2.4% 2.2% 2.3% 2.1%

-0.1% -4.7% 2.3% 0.4% 4.0% 4.5%

4.6% 4.9% 3.8% 4.1% 3.4% 3.7%

3.2% 3.5% 2.2% 2.7% 2.0% 2.2%

4.4% 4.6% 4.9% 5.0% 5.0% 5.1%

4.5% 4.0% 3.3% 3.2% 3.1% 3.0%

3-5 hikes 2-3 hikes 2-3 hikes to 2-3 hikes to 1-2 hikes 0-1 hike 1.25%-1.5% 1.75%-2.25%

-994.00 -1,220.00 -794.00 -920.00 -694.00 -720.00

20,642 21,487 20,573 21,643 20,530 21,487

0.0% 7.0% 1.0% 5.0% 2.0% 5.0%

Nominal import growth

Wages

Inflation

Unemployment

USD scenario (variation)

Fed scenario

Deficit (USDbn)

Total debt (USDbn)

Business insolvencies

2017 2018 2017 2018 2017 2018

Full policyimplementation

10%

Partial policyimplementation

65%

Minor policyimplementation

25%

Chart 3: US Economic forecasts – Baseline and alternative scenarios


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As for taxes, companies may operate in a morehospitable environment thanks to a corporatetax rate cut from 35% to 15% and the expensingof capital expenditures over the first year insteadof 10 years. This should be enacted in line withthe electoral promises. This will favor private in-vestment and should incentivize cash piles onbalance sheets to be put to work. Certain indi-viduals could benefit from partial personal in-come tax cuts, but to a lesser extent comparedto electoral promises. However, the fiscal stimulus is expected to bringtotal public debt above the debt ceiling ofUSD20.1tn (to be reinstated in March 2017).The US Congress would probably lend its sup-port to increase the limit further, but a tempo-rary government shutdown cannot be excluded.Secondly, domestic, non-tradeable sectors suchas Retail and Construction should benefit themost this demand boost. Some tradeable sec-tors could also benefit from improved compet-itiveness and deliberate support, such as theanti-dumping measures in the metal industry.Others such as textile or electronics could, onthe contrary, be more impacted by the negativespillovers of the Trump Administration’s tradepolicy than by positive externalities of the fiscalboost.

+2.4% Expected

US GDP growth in 2017

REGIONALOUTLOOK

US Captain America: Flexingfiscal muscles, picking tradebattles

Our baseline scenario for the US (65% likelihood)foresees a partial implementation of the elec-toral policy pledges made by President DonaldTrump, including the launch of a fiscal stimuluspackage for 2017. The subsequent reflation willcause the Fed to tighten at a faster pace overthe next three years As a result, we expect a short-term boost in USgrowth to +2.4% in 2017 with a slight slowdownto +2.2% in 2018. This will take place againstthe background of a somewhat containedmedium-term risk of negative spillover of thepolicy-making (e.g. retaliatory protectionism).

The rise of the fiscal Avenger First, fiscal measures could include a decade-long spending on infrastructure to the tune ofUSD0.5tn over 10 years. This amounts to half ofwhat the new president promised during hiscampaign and though disbursements may bedelayed as projects are identified (and privateinvestment and debt called to the rescue), thiswill be an important policy stance.

© figurine. image courtesy of Pat Lolka, flick

Balance sheet

Profit & lossstatement

Cash flowstatement

CashAccounts ReceivableInventoryOther currentPP&EGoodwillDef. financing feesOther non-currentTotal assets

Accounts PayableOther currentNew credit facilityNew subordinated debtOther non-currentEquityTotal liabilities & equity

IncomeSales Other income

ExpenditureCost of goods sold

Operating and other expensesDepreciation/AmortizationInterestTotal Exceptional items

Profit/(loss) before taxLess: TaxProfit/(loss) after tax

Operating activitiesNet income from operationsDepreciation expenseChange in WCR

Investing activitiesPurchase of equipmentSale of used equipment

Financing activitiesIncrease in long term debtIssuance of stockDividends paid

Net change in cash flow

1 2

34

5

2 4

2

4

4

4

4

4

2

2

2

2

1 1

1

33

3

3

3

5

5

Measure #1 = positive impact on…

Measure #4 = negative impact on…

Measuresproposedduring thepresidentialcampaign

14

1Demand growth: USD0.5tn ininfrastructurespending over10 years andpartial personalincome tax cuts

2More inflation:+2.2% in 2017,+2.7% in 2018and higherinterest rates2-3 hikes up to1.25% in 2017; 1-2 hikes up to1% in 2018

Expensing ofcapitalexpenditureover the first yearand (presumed)disallowance ofinterest expensesdeductibility

4Risingprotectionism:15% tariffs onChinese goodsas from H2 2017,NAFTArenegotiations

5Corporatetax cutsto 15%

3


Simulated impact of selected policy actions of the new administrationon US companies’ financial statements


7

▶

America and MENA while they are quite strongin Canada, Europe, and Asia Pacific. If President Trump keeps his electoral promise,a substantial shift in trade partnership is to beexpected, from multilateralism and regional ac-cords to bilateral deal-making. Relations withthe Pacific (TPP) and Europe (TTIP) will be puton hold. Concurrently, a more restrictive tradepolicy will affect countries with large trade sur-pluses with the US. China and Mexico are at thetop of this list. The 45% tariff announced duringthe campaign seems far-fetched but a 15% tar-iffs on imported goods from China and non-standard measures such as the reinforcementof the Buy American Act, differentiation throughfiscal regime, and protectionism on servicescould mushroom. Last, though a renegotiationof NAFTA is not likely in 2017, non-tariff barriers(tightened standards, e.g. packaging) and in-centives to re-shore activities could be imple-mented. This would have negative conse-quences for US companies producing part oftheir products in Mexico (car industry for in-stance).

Last, at the company level, there is a series ofchannels of impact to be expected and even-tually favor American companies: the demandboost and corporate tax cuts will favor cash gen-eration, while capital expenditures incentiveswill ensure future productivity. On the otherhand, inflation and the rise of interest rates mayincrease cost of financing and will make debtharder to access. Also, protectionist measureswill strain input costs, hence deteriorating prof-its and cash flow from operating activities. Even-tually, the combination of business growth, sup-ply cost uncertainties, and more expensivefinancing could increase working capital re-quirements and credit risk.

The monetary shield will be deployedfasterRobust consumer confidence coupled with anear full employment labor market and risingwages means that the economy will run therisk of slight overheating in 2017. The fiscalstimulus (even without imported inflation fromnew trade barriers) will push inflation expec-tations and thus US long-term yields higher.

The Fed has hiked interest rates a second timein December 2016 (+25bp to 0.5%-0.75%) afterthe first hike in December 2015 and has sug-gested a more sustained path of rate hikes go-ing forward. Though a scenario à la 1994 – arapid tightening which caused a credit crunch– is not likely, we expect 2 to 3 rate hikes eachyear until 2019 to get the key interest rate closerto the 3% mark. This will end up the long-awaited normalization cycle after experimen-tally accommodative monetary policy. Potentialnegative effects of scarcer liquidity in USDcould be found in the emerging world.

Protectionism: Beware of the WinterSoldier when it comes to trade Implications for the rest of the world may bedetermined by financial (currencies), trade (ex-ports to the US) and investment (net FDI to theUS) flows. Two regions appear as highly ex-posed: the Americas and Asia Pacific. Two otherregions are exposed to a lesser extent: Europe,and Middle East North Africa (MENA). Bufferssuch as public finances, monetary policy, andcurrent account balances appear limited in Latin

kr.com under CC2, creativecommons.org.licenses.by.2.0


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-0.2 -0.2 -0.1 -0.1

-0.3

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Spain The Netherlands France Germany Italy

Private investment Private consumption

Public spending Impact on GDP growth

2016 2017

Chart 4 Impact of political uncertainty per calendar year (pp)

Sources: policyuncertainty.com, Euler Hermes

ulist vote (Germany, France, Italy, the Netherlands)and concerns about the efficacy of public policiesare among the downsides. Yet our central scenariois a series of optimistic outcomes in these elec-tions, including a pro-European stance. All in all, we except growth to be moderatelyimpacted by another year of political chutzpah:-0.2pp of GDP for the Netherlands, -0.1pp forFrance and Germany, and -0.3pp for Italy.

Relying on policy web-shootersDespite balanced and stable economic growth,Europe has suffered from some jitters. The dis-

performing loans, notably bad debts equal to12% of GDP; (ii) low profitability; and (iii) un-dercapitalization, especially of small-mediumsized banks. Restructuring and consolidation ef-forts will follow in the upcoming months, withsupport from the public sector and Europeaninstitutions. We expect Italian GDP growth toslow down to +0.6% in 2017 (from +0.9% in2016) and to slightly recover in 2018 (+0.8%). Third, France, Germany, and the Netherlands willhold general elections this year. Italy could alsopossible call for general elections earlier than 2018.Limited fiscal space (France, Spain), growing pop-

European Spider-Man: Agilepolicy-mix to protect growthEuler Hermes expects Eurozone’s GDP growthto remain resilient at +1.6% in 2017 (after +1.7%in 2016). Private consumption will continue todrive growth thanks to a pick-up in employmentwhile oil prices remain favorable, below63USD/bbl for the Brent (neutrality threshold). Private investment should continue to recoveras turnovers and margins increase, although thebusy electoral calendar ahead could create await-and-see syndrome and cost some GDPpoints. Trade should be boosted by a lower EURin 2017 (1.05 to the USD) as the monetary di-vergence between the ECB and the Fed in-creases. The rise in input prices (lower EUR,higher commodity prices) will be partiallypassed through to consumers.

Watch out the Sinister three: Brexit,the Italian banking sector, and gen-eral electionsFirst, the Brexit Sword of Damocles continuesto weigh on confidence in the UK. It is a longand painful road to secession from the EU, withmany political twists. As a consequence, theBritish currency and new investment will con-tinue to bear the brunt. We expect GDP growthto slow down to +0.9% in 2017 (down from +2%in 2016) and to +0.6% in 2018. Second, the Italian banking sector remains frag-ile for three reasons: (i) the high stock of non-

© Image courtesy of pixabay.com. Under CC0 Public Domain spiderman-515215


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EUR60bnMonthly ECB assetpurchases until at least endof 2017

0

20

40

60

80

Covered bonds

ABS

Corporate bonds

Sovereign bonds

11-1

709

-17

07-1

705

-17

03-1

701

-17

11-1

609

-16

07-1

605

-16

03-1

601

-16

11-1

509

-15

07-1

505

-15

03-1

5Chart 5 ECB QE program – Monthly net asset purchases(EUR bn)

Sources: Eurostat, Euler Hermes

The regime switch in multilateralism could alsomean that Europe flexes its policy muscles on in-dustrial, innovation and trade policy to dodge theballs coming from the US and China. The busyelection calendar could postpone decisive actionto 2018 but major ideas could be put forwardthis year to get traction from the Member States.

The Chinese Iron Man is fine-tuning its policy battle suitIn 2017, GDP growth will remain above +6%thanks to strong public support and solid privateconsumption. Exports and private investmentwould underperform. Services will remain themain driver of the economy, while the manu-facturing sector will continue to restructure.

Calibrating policy weapons will bepivotal to temper negative external-ities The authorities’ ability to support growththrough credit has deteriorated. For eachRMB1bn of additional growth, there wasRMB1.8bn of additional domestic credit in 2011.It is now RMB3.6bn. As credit was not used tofinance productive investments the impact oneconomic activity has diminished. Investmentefficiency has also worsened. In 2016, 6.6 points

and France who still are above 3% deficit targetswhile countries who have contained their deficitsuch as Germany could postpone such publicsupport to after the election. As a consequence,active fiscal policy should remain limited to al-ready planned tax breaks in the Law of Financesof countries where the private sector has advo-cated for competitiveness (Ireland, Italy). At thepure European level, the tool box is being en-riched as the European Commission’s proposalto increase the size and the duration of theJuncker Plan (EUR500bn until 2020, an increaseof EUR185bn for 2 more years) has been ap-proved. The impact on GDP growth could beup to +0.5pp per year if fully implemented.However, disbursement today stand around 73%(EUR154bn have been currently mobilized).

course across the continent has descended intopopulist and protective arguments. Faced with thepro-Brexit vote in the UK and the rise in populism,Europe has demonstrated better policy-making.The ECB maintains its safety net while the Euro-pean Commission is pushing for more fiscal stim-ulus when fiscal space is available, as well as anextension of the Juncker Plan for investment. The ECB announced in December 2016 that theasset purchases program will continue until end-2017 or beyond at a pace of EUR60bn per monthinstead of EUR80bn previously. This untaperishtapering (since the total balance sheet continuesto increase) is the beginning of a long-awaitednormalization. The ECB also announced an ex-tension of the perimeter to more debt securitiesto ensure a successful implementation of theprogram. This means additional support ofEUR540bn bringing the total program toEUR2.1tn at end of 2017. The ECB’s guidanceand its dovish stance continue to anchor andreassure. The risk of deflation has largely disap-peared and inflation expectations are limited to+1.1% in 2017 and +1.4% in 2018. This confirmssteady interest rates till 2019. As for fiscal policy, it should be neutral in 2017and positive in 2018. The European Commissionrecommended 0.5 GDP point of stimulus to sup-port the recovery. This welcome recommenda-tion poses concerns for countries such as Spain

RMB3.6bnOf additional credit needed to

generate RMB1 of additionalgrowth

▶

© Image courtesy of pixabay.com. Under CC0 Public Domain iron-man-577332


10

1

2

3

4

5

1615141312111009

Chart 6 Credit Intensity needed to generate1 RMB of growth

Sources: IHS, Euler Hermes

2

3

4

5

6

7

8

161514131211100908070605

Investmentless efficient

Chart 7 Incremental Capital Output Ratio (Investment over GDP/GDP growth)


economies in the world. The EU and Japan areexpected to make concessions to preservetrade relations. As a consequence, China is ex-pected to accelerate its outside influenceagenda: (i) The One Belt One Road initiativealready kicked off with projects in Pakistan andEast Africa. Infrastructure financing (Asian In-frastructure Investment Bank, Silk Road Fund)has been pivotal; (ii) an agreement could bereached on the Regional Comprehensive Eco-nomic Partnership, a free trade agreement be-tween ASEAN Members, Australia, NewZealand, India, Japan, South Korea and China;and (iii) on the currency front, the RMB inter-nationalization as a means of payment and asreserves currency should gather steam in2017. The overvaluation of the RMB has alsobeen a strong enabler for China’s influenceagenda: acquisitions have been at a recordhigh level for the past 18 months. This mo-mentum should continue till mid-2017.

customers and new investment revenues (Onebelt One Road), strong partnerships and politicalinfluence (Regional Comprehensive EconomicPartnership).

Creating its own league to promoteand finance growth rebalancingChina’s rebalancing has already started to im-pact sectors and countries around the world.Going forward, established semi-finishedgoods producers - Hong Kong, Taiwan, Singa-pore, and South Korea – along with longtimeindustrial commodity suppliers, will continueto feel the pinch. On the positive side, Asia’slow value-added retailers, as well as high value-added Western producers, could benefit fromChina’s new economic model. The failed attempt to get Market Economy Sta-tus and slated protectionist measures from theUS could mean retaliation and heightened po-litical tensions between the two biggest

of capital are needed to generate 1 unit of ad-ditional GDP while in 2005, only 3.5 points wererequired. Improving the efficiency of macroeconomicpolicies will be pivotal in the longer term. First,this will help reduce the reliance on debt. Cor-porate debt has increased by an average of 10points of GDP per annum since 2012. Second,improving the return on investment could helpto keep savings and capital in China. At leastUSD500bn have left the economy in 2016.

As a consequence, authorities are expected tofocus on the following five Cs in 2017-18: ❶ Promote Credibility. Improving investors’ faithin government policies will be pivotal to avoidvolatility, maintain adequate capital inflows, andsupport private investment. Clear communica-tion and a reasonable GDP growth target of +6%± 0.5pp in 2017 are keys. We expect the econ-omy to expand by +6.2% in 2017.❷ Contain Credit risks. Corporate debt accountsfor 170% of GDP and corporate bankruptcies areset to increase by +10% in 2017 (+20% in 2016).A tighter monetary stance in 2018 could initiatea gradual deleveraging. Meanwhile, the fiscalstance will remain accommodative to supportgrowth.❸ Reduce excess Capacities in the productionof basic materials. This task will be tackled witha step by step approach. New orders will likelybe weak with more protectionist measures over-seas and a tightening property market. But sup-ply growth would adjust at a slow pace as au-thorities prioritize employment overovercapacity reduction. Reforms of State OwnedEnterprises (SOEs) – which are major suppliers- will likely be gradual. ❹ Manage the Currency. The RMB could depre-ciate by -3% in 2017 against the USD. Pressurescould mount due to a diverging monetary policywith the US, less favorable news, and higher re-turns on investment abroad. In this context, theauthorities may pursue currency international-ization but at a gradual pace to minimize theimpact on growth. They would intervene inForex markets to limit sharp adjustments of thecurrency, use temporary capital controls, andinitiate tighter regulation to limit the pace ofcapital outflows. ❺ Tweak the Commerce strategy. USD-denom-inated goods exports decreased by -7% in 2016.The US, which accounts for 18% of China’s ex-ports, may increase trade barriers. China willseek new commercial drivers: a price competi-tiveness boost (Market Economy Status), new Source: Euler Hermes

Industry: High-value added industriesCountries: Western marketsDrivers: Foreign investment from China

Industry: Cheap manufacturing hubsCountries: Vietnam, Cambodia, Laos, MyanmarDrivers: Chinese value chain

Industry: Property marketsCountries: High income marketsDrivers: Investment diversification and search for yields

Industry: Consumer goods producers and cheap retailersCountries: Western Europe, Japan, South Korea, Emerging SouthEast Asia with Cheap currenciesDrivers: Tourism and expanding middle class

Industry: (Old) Semi-finished goods producersCountries: Hong Kong, Taiwan, Singapore, South Korea,East Asia with Cheap currenciesDrivers: Upgrading of the Chinese economy

Industry: Industrial commodities suppliersCountries: Australia, Indonesia, Malaysia, Latin American markets, AfricaDrivers: Overcapacity reduction, less reliance on commodities intensive sector

Pote

ntia

l win

ners

Lose

rs

Chart 8 Potential winners and losers of China’s readjustment

▶

11

▶

economic rebalancing, other opened advancedeconomies in the region such as South Koreaexperienced a drag on growth related to slug-gish trade. But balances remained good, andthe growth slowdown was contained. Buffers(strong savings) allowed an easing bias to mon-etary policy. Vibrant domestic credit and the oildividend (net importers of oil) fueled domesticdemand. As worldwide growth improves, AsiaPacific economies should benefit gradually.

The Torch (Russia, India, Poland) willlight up growth prospectsSome emerging economies decided to frontload reforms and belt-tightening (or wereforced to) to avoid policy slippages and start torebalance faster than others. In a nutshell, ex-change rate adjustments tamed demandprospects: lower import volumes allowed cur-rent account balances improvement. India andPoland were the first large Emerging Marketsto achieve this rebalancing and thus initiated acycle of high growth, expected to continue. As for Russia, the improved balance means thatcapital inflows will be only partially needed tofinance growth. The current account surplusincreased from +2% to +5% of GDP despite astaggering -55% fall in export prices due to theoil price slump. This means that the private sec-tor has been piling up savings and is now readyto finance the recovery.

Mrs. Invisible (Brazil, South Africa):No growth in sight, for nowAmong commodity-rich emerging markets,some did not take the right policy decisions inthe face of adversity, often because of political

show higher growth in 2017. Second, countrieswith vibrant growth prospects as rebalancing isdone both internally and externally are The Torch(India, Russia, and Poland). A third group consistsof countries with stagflation and important cur-rent account deficit, trying to reduce their im-balances. They are our Mrs. Invisible since nogrowth is in sight this year (Brazil and SouthAfrica). Last, The Thing: economies and policiesare heading in the wrong direction (Turkey andMexico) which would mean a backlash downthe road.

Mr Fantastic (South Korea) will capi-talize on buffersAmong Asian economies, one can discern sev-eral income groups (advanced economies likeSouth Korea, and middle-income ones likeChina). Yet a common growth strategy emergedafter the 1997 Asian Crisis: strong savings base,targeted protectionism, reinforced manufactur-ing sector. At the end of the day the elementsthat make a real difference are innovation andcompetitiveness.While some countries like China welcomed an

The emerging FantasticFour will need superpowersto attract investors

Outside of the US, China, and Europe, GDPgrowth took a hit after the commodity priceslump. The shock stemmed from China and hitmany commodity exporters in emerging mar-kets and some advanced economies such asCanada and Australia. Now that prices are re-covering even mildly, growth is back in theemerging world, but not everywhere and notfully. Growth prospects and existing vulnerabil-ities depend on imbalances and how they areaddressed: current account imbalances and in-ternal ones (inflation) are sending strong signalsfor the expected exchange rate and GDPgrowth.Using the inflation and current account dynam-ics, we defined a typology of markets outsidethe G3 to understand investors’ selectivity goingforward. First, countries with low inflation anda current account surplus (South Korea) are ourMr. Fantastic: they have ample buffers and will

30

40

50

60 Agregate EM Fragile Four

16151413121110090807*

* June

50= no growththreshold

Chart 9 Emerging Markets aggregatemanufacturing PMI Fragile 4 = Brazil, Russia, Turkey and South Africa

Sources: Bloomberg, Euler Hermes


© photo courtesy of Prayitno, flickr.com under CC2, creativecommons.org/licenses/by/2.0


12

+15%Rise in business

insolvencies in Brazilin 2017

However, there are still economies going in thewrong way: from countries relying too heavilyon commodity exports which suffered cash con-straints (Ghana, Tunisia, Egypt) and sharp cur-rency depreciations (Nigeria, Egypt) toeconomies where dynamics turned in the wrongway even without adverse export price change.Turkey and Mexico are two such examples. In-creasingly dovish policy smoothed shocks toomuch, scrambling the price signal that wouldhave nurtured diet growth. As a result, theseeconomies are increasingly unbalanced. Thesecountries are prone to shocks and bumpygrowth should become the norm.

The X-Men: Big ticket itemsshaping 2017 and beyondThe low growth environment has yielded to keychanges in the world economy. Like in X-Men,mutant economic trends can be positive heroesor toxic characters.

inertia. As a result, negative and low growthepisodes lasted longer and the private sectorhad to rebalance more aggressively to copewith a lagging consolidation of the fiscal deficit.This was particularly true in Brazil and SouthAfrica where targeted credit support to thecommodity-related investment did not adjustwhen prices dropped.These economies should fare better in 2017,but prospects are limited as efficient (but costlypolitically) policy choices may be postponed:private sector confidence is still very low in Braziland South Africa and elections are looming head(end-2018 in Brazil and 2019 in South Africa)

The policy Thing (Turkey, Mexico) isweighing on growthLimited world growth over the past years wastriggered by rebalancing efforts in keyeconomies. Savers drove the world economy tolow growth. Now that this global rebalancing isalmost over, most countries are growing again.

China

Korea,Republic of

Russia

Brazil

India

Mexico

South Africa

Turkey

Poland

Current account (% of GDP)

Infla

tion

rate

(%)

Last point: Q3-2016 -4%

0%

4%

8%

12%

16%

-8% -3% 2% 7%

Ongoing rebalancingGoing wrong way

Already balancedRebalanced

Chart 10 Inflation vs. current account balance dynamics over the past four years (quarterly data)


3Changes in

monetary policystance in Turkey

in 2016

+7.5%Expected

GDP growth inIndia in 2017

▶


13

(De)globalization: The end of theMagneto effect for trade and finan-cial flows?After two consecutive years of contraction, tradegrowth could recover in 2017 in value terms(+3.5%). Imports from the US, from Europe, andfrom the emerging world (Brazil and Russia, ex-iting recession; China growing fast) are on therise. The recovery in value is also explained bythe reflation trend, especially on commodities:food prices up +12% y/y in December 2016,and Chinese steel prices up +16% in 2016. Yet volume growth will stay below +4% in themedium-term: we forecast +2.9% in 2017, after

ria are exempted from the OPEC output cuts.Second, supportive policies are finally working.This is particularly the case for China from Q2to date: the construction sector made a notice-able comeback, supporting worldwide metalprices. The result is the end of deflation for Chi-nese producer prices and even a timid recoveryof the manufacturing sector globally. Accom-modative monetary policy is also helping: lowcredit costs have paved the way to a recovery inresidential investment across the board (France,in Europe, is a good example), and market in-flation expectations are now fairly above +2%in the US. In addition, new pledges to boost in-frastructure spending plan are driving prices up. This price recovery should be contained as higherinflation expectations will be eventually curbedby the series of rate hikes the Fed slated for 2017.Core inflation is very much in check. A wage-pricespiral risk is limited in the US (maybe not in non-tradeable segments with full employment suchas services and construction) and other CentralBanks have been prudent with inflation targetingin the advanced economies and the emergingworld. All in all, the first-round effect of this refla-tion trend should be positive in the short-run forcompanies’ turnover growth and indebtedness.Negative second-round effects (higher input costs,accelerated transmission to consumer prices,wage-setting-price-setting loop to name a few)are not foreseeable at the moment.

Price Wolverine to reflate the WorldEconomyLow growth drove balance sheet adjustmentsof indebted countries and sectors. As a result oflower demand growth, commodity prices andthe general price level took a hit. Now, severalforces favor a price recovery.First, there is a base effect on oil prices. Oilprices have fallen by -17% in 2016 (yearly av-erage), though markedly up from their record-low price of USD27 per barrel in February 2016.The recent OPEC deal signed in November2016 to cut production by 1.2 million barrels aday as of January 2017, to reassure secondaryproducers, also worked for non-OPEC oil pro-ducers: Russia and Mexico will cut output by0.6 million barrels a day. All this should reduceglobal oil supply by -2% over the year. As a re-sult, Euler Hermes forecasts the yearly averageBrent price to rise by +21% to USD54 per barrelin 2017. Two important caveats to this increaseare: (i) US shale producers are rushing backinto the oil market; and (ii)Iran, Libya, and Nige-

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

20

35

50

65

80

95

110

125Brent price (rhs)USD/b

Supply-Demand (lhs)MM b/d

Q1-17Q1-16Q1-15Q1-14Q1-13

Chart 11 The global oil market and Brent prices

Sources: EIA, Euler Hermes forecasts

-10

-8

-6

-4

-2

0

2

4

62018f2017f2016e2015

ItalyFranceSpainGermany

Chart 12 Turnover growth (manufacturing excl. energy, %)

Sources: Eurostat, Euler Hermes

+2.3%Nominal GDP growth inFrance in 2017, above 2%for the first time since 2011 ▶

© photo courtesy of Prayitno, flickr.com under CC2, creativecommons.org/licenses/by/2.0


14

0 20 40 60 80 100 120 140 160 180

20162015Comp & Telecom

Construction

Transport

Retail

Machinery & Equip.

Air Transport

Paper

Textile

Chemicals

Transport equip.

Energy

Metal

Agrifood

In total: 567between Q1-Q3 2016vs. 703in the same periodof 2015

Chart 13 Protectionist measures on a global scale (cumulative Q1-Q3 2016*)

*Date of implementation known by GTASources: GTA, Euler Hermes

80

85

90

95

100

105

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%Total imports/production (volume 100=2008, lhs)Total bank credit (cross-border/local, %, rhs)

1615141312111009080706050403020100

Chart 14 Deglobalization: goods vs financial flows

Sources: BIS, IHS, Euler Hermes

Latin America for instance; and (ii) savings arestaying in high-income markets, even if notyielding much (negative interest rates in Japanand the Eurozone for instance). Domestic M&A deals are increasing faster thancross-border ones and more importantly totaldomestic financing grew at a compound annualgrowth rate of +5% between 2011 and 2015compared to only +0.5% for cross-border bankcredits delivered.

shown they can decide to open parsimoniouslyto avoid a protectionist vote and use public sup-port for transitioning sectors. However, anothertrend is more vivid: the financial balkanizationor financial de-globalization. It will create an ac-celeration of isolationism if not addressed. Indeed, financial flows within and betweencountries continue to disappoint: (i) capital isnot going into the real economy. Credit condi-tions are still too conservative in Asia Pacific and

a record low at +1.9% in 2016. Regime switchin demand (China's rebalancing; energy auton-omy in the US; adjustments in the emergingworld), isolationism and servitization/digitaliza-tion explain this daunting trend. Protectionismhas been increasing for the past years: 700+new restrictive measures were introduced eachyear between 2012 and 2015. In 2016, only 567trade barriers were issued during the first ninemonths of 2016, compared to 703 in the sameperiod in 2015. But indirect protectionism is onthe rise (public procurement, subsidies, com-pensation).Sector-wise, three sectors concentrate 70% ofall measures: Chemicals (27%), Energy (24%)and Agrifood (19%). Yet, the recent introductionof protectionist measures are in industries usu-ally immune to such behaviors: Metal (+9% innumber of measures) – the US increased importtariffs on steel by +266% with a clear impact onprofits –, transport equipment (+9%) and airtransportation (+33%). Investment- and job-in-tensive sectors in both the advanced and emerg-ing markets are on the radar.Going forward political escalation on locationchoices for visible industries (car industry for in-stance), shortening of supply chains, and reten-tion of value-add will be the norm as the US andChina have decidedly moved into that direction.Europe and large emerging markets have also


15

country’s recent opening, especially as theTrump Administration has voiced concerns. InDecember 2017, the South African NationalCongress will elect its new leader, who will au-tomatically become its candidate to the 2019presidential elections. The ongoing battle forthe soul of the ANC may determine whetherSouth Africa will continue to be frozen by ratingdowngrades, and political turmoil. In March2018, the poll in Russia will likely renew the gov-ernment’s mandate, despite two consecutiveyears of recession, which are aggravated bysanctions. Mexico, which is the most vulnerableto American protectionism, will hold its elec-tions in July 2018. Finally, Brazil’s presidentialelections are scheduled for October 2018. Asthe political spectrum remains highly polarized,the stakes are high and a return to political tur-moil is not unlikely. To conclude, the adequacy of policy responsesby established political forces, and the resilienceof private enterprises, will largely determinewho will weather political uncertainty and a de-crease in global liquidity. Beggar-thy-neighborpolicies are a clear risk and businesses aroundthe world have to rediscover economic, politicaland country risk intelligence, scenario and con-tingency planning, as well as existing hedginginstruments. ◽

The Netherlands in March, France in April andGermany in September. Mainstream partiesface strong challengers. Our core scenario ex-cludes a populist storm but the wake-up call isalready here for politicians to fix the defianceconundrum, embrace an inclusive reformagenda (to boost the middle class), and pro-mote long-term prosperity instead of a crisismanagement mode. At the European level, thepatches to the Italian banking sector need tohold, the Brexit process to be managed withoutbreaking confidence (as hardliners seem todominate the talks), and the completion of thethird Greek bailout (scheduled for 2018) needsto be tight. In China, pressures are mounting to deliverpromises and restore confidence to financegrowth with savings from the Chinese people.The divisions at the top are more and more vis-ible between more market economy featuresand fewer ones. China’s leaders seem deter-mined to stimulate the economy to meetgrowth targets in the lead-up to the CommunistParty Congress in October 2017 to solidify theirgrip on power. Still, the country is likely to be-come more reform-oriented and less supportiveafter the Congress meeting. In other emerging markets, stormy weather willbe clouding the outlook. For instance, May elec-tions in Iran may be a game-changer for the

Advanced economies finance and invest do-mestically and receive savings from countrieswith strong current account surplus (China e.g.).The number of M&A deals between China andWestern European companies has been multi-plied by five since 2010 illustrating how Chinesesavings are looking for safe havens outsideChina.In the meantime, emerging markets with largefinancing needs (Indonesia, Turkey, e.g.) still relyon short-term capital flows.

Policy nudges everywhere look like aperfect Storm 2017 will be another year of heavy politicsweighing on the economic performance. Ofcourse, the US is under scrutiny as policy deci-siveness is a trait of the Trump Administration.Diplomatic faux pas will be many and non-UScompanies’ business interests will be elbowedhere and there. The risk of retaliation is high.Contagion risks are high too as the US is thelargest economy, the most interdependent(largest current account deficit, the hegemonyof the dollar), and the market place for manyglobal goods and services.Europe will have to deal with its usual politi-cized agenda from the very architecture of theeconomic and monetary union to the refugeecrisis and border control to pivotal elections:

© image courtesy of nasa unsplash.com under CC0

NB: Baseline assumptionsSource: Euler Hermes

June, September 2017: Fed might hike interest rates (+25bps each time)November 2018: US Midterm Elections House/Senate majorities might remain solid

October 2018: First Round of Brazilian Presidential Elections Return to the past is possible

South African National Congress P

April 2017: French presidential elections Fiscal reforms in the limbo

2017, likely in H2: UK triggers article 50

E further

December 2017: Italian elections Moderate party wins

Eurogroup Meeting N for Greece to insure the end of the bailout

Iranian presidential elections P

Chinese Communist Party Congress C

Russian presidential elections P

German Federal Elections M

July 2018: Mexican Elections Moderate Stance will continue


16

Policynudges

2017-2018

December 2017: South African National Congress Political deadlock to continue

January 2018: ECB reduces QE pace further

December 2017:

Eurogroup Meeting New debt relief measures for Greece to insure the end of the bailout May 2017:

Iranian presidential elections Policy continuity

October 2017: Chinese Communist Party Congress China becomes less supportive

March 2018: Russian presidential elections Putin wins renewed mandate

September 2017: German Federal Elections Merkel should stay in power


17

Political seasons and policy nudges2017-2018


18

Country RiskLevels

2016

Medium termrisk:the scale comprises 6 levels :AA represents the lowest risk, D the highest.

Short termrisk :the scale comprises 4 levels :1 represents the lowest risk, 4 the highest.

Source: Euler Hermes, as of December 16, 2016

Low risk Medium risk Sensitive risk High risk _Improved rating `Deteriorated rating


19

Country Risk Map at the end of 2016

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Public bumpers for the automotive market

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Business Insolvency Worldwide

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12/29/2016 Insolvencies: The tip of the iceberg

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12/26/2016 Sector Risk Map Q4 2016

12/26/2016 Country Risk Map Q4 2016

12/25/2016 China's economy needs 5 doses of Vitamin C

12/22/2016 France: A Winter’s tale

12/13/2016 Five Vitamin C’s for the Chinese Winter

12/12/2016 Thailand: Fragile expansion

12/12/2016 Sweden: Fighting the housing bubble

12/12/2016 Panama: Strong growth fueled by capital inflows

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12/12/2016 Guatemala: Fiscal and institutional challenges for the new government

12/12/2016 Ecuador: Falling into recession

12/12/2016 Colombia: Growth to accelerate after the fall in oil prices

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12/12/2016 Australia: Subpar growth ahead

12/09/2016 Italy’s economy after the referendum: Now what?

12/09/2016 Iceland: Strong growth as capital controls have been mostly lifted

12/09/2016 US: Fed a bit more hawkish, other data disappointing

12/08/2016 Eurozone: QE for longer, but lower monthly asset purchases

12/08/2016 Uganda: Balancing act between growth and balances

12/08/2016 Qatar: One of the most resilient players in the region

12/08/2016 Namibia grows resiliently despite external weaknesses

12/08/2016 Mozambique in debt distress

12/08/2016 Mali reaping peace dividends amid a fragile security situation

12/08/2016 Lithuania: Recovery in investment should boost growth in 2017

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>Hong KongEuler Hermes Hong Kong Services LtdSuites 403-11, 4/F - Cityplaza 412 Taikoo Wan Road Taikoo ShingHong KongPhone: + 852 3665 8901

>HungaryEuler Hermes Europe SAMagyarrorszagi FioktelepeKiscelli u. 1041037 BudapestPhone: +36 1 453 9000

>IndiaEuler Hermes Services India Pvt. Ltd5th Floor, Vaibhav Chambers Opposite Income Tax OfficeBandra Kurla ComplexBandra (East)Mumbai 400 051Phone: +91 22 6623 2525

>IndonesiaPT Asuransi Allianz Utama IndonesiaAllianz Tower 32nd floorCredit Insurance DivisionKawasan Kuningan PersadaSuper block 2Jln. H.R. Rasuna Said, Jakarta Selatan 12980Phone: +62 21 2926 8888

>IrelandEuler Hermes IrelandAllianz HouseElm ParkMerrion RoadDublin 4Phone: +353 (0) 1 518 7900

>IsraelICIC2, Shenkar Street68010 Tel AvivPhone: +97 23 796 2444

>ItalyEuler Hermes Europe SARappresentanza generale per l’ItaliaVia Raffaello Matarazzo, 1900139 RomePhone: + 39 06 8700 7420

>JapanEuler Hermes Japan Branch Office10th Fl., New Otani Garden Court,4-1 Kioi-cho, Chiyoda-ku,Tokyo 104-0094Phone: + 81 3 35 38 5403

>KuwaitPlease contact United Arab Emirates

>LatviaPlease contact Finland

23


>LithuaniaPlease contact Finland

>MalaysiaEuler Hermes Malaysia BranchLevel 28, Menara Allianz SentralJalan Tun Sambanthan, 50470 Kuala LumpurPhone: +603 22721387

>MexicoSolunionTorre PolancoMariano Escobedo 476, Piso 15Colonia Nueva Anzures11590 Mexico D.F.Phone: +52 55 52 01 79 00

>MoroccoEuler Hermes Acmar37, bd Abdelatiff Ben Kaddour20 050 CasablancaPhone: + 212 5 22 79 03 30

>The NetherlandsEuler Hermes NederlandPettelaarpark 20P.O. Box 707515201CZ’s-HertogenboschPhone: + 31 (0) 73 688 99 99 / 0800 385 37 65

Euler Hermes BondingDe Entree 67 (Alpha Tower)P.O. Box 124731100 AL AmsterdamPhone: +31 (0) 20 696 39 41

>New ZealandEuler Hermes New Zealand LtdTower 1, Level 11205 Queen StreetAuckland 1010Phone: + 64 9 354 2995

>NorwayEuler Hermes NorgeHolbergsgate 21 P.O. Box 6875 St. Olavs Plass0130 OsloPhone: + 47 2 325 60 00

>OmanPlease contact United Arab Emirates

>PanamaPlease contact Solunion Mexico

>PeruPlease contact Solunion Colombia

>PhilippinesPlease contact Singapore

>PolandTowarzystwo UbezpieczeEuler Hermes SAAl. Jerozolimskie 9800-807 WarsawPhone: +48 22 363 6363

>PortugalCOSEC Companhia de Seguro deCréditos, SAAvenida da República, nº 581069-057 LisbonPhone: + 351 21 791 37 00

>QatarPlease contact United Arab Emirates

>RomaniaEuler Hermes Europe SA BruxellesSucursala BucurestiȘoseaua Pipera 43Bucharest 014254, Phone : +40 21 302 0300

>RussiaEuler Hermes Credit Management OOOOffice C08, 4-th Dobryninskiy per., 8Moscow, 119049Phone: + 7 495 981 28 33 ext.4000

>Saudi ArabiaPlease contact United Arab Emirates

>SingaporeEuler Hermes Singapore Services Pte Ltd12 Marina View#14-01 Asia Square Tower 2Singapore 018961Phone: +65 6589 3700

>SlovakiaEuler Hermes Europe SA, pobokapoist’ovne z ineho clenskeho statu2012: Plynárenská 7/A82109 BratislavaPhone: + 421 2 582 80 911

>South AfricaEuler Hermes – South AfricaThe Fris32A Cradock AvenureRosebank 2196Phone:+27 10 59348 01

>South KoreaEuler Hermes KoreaLevel 21, Seoul Finance Center, 136 Sejong-daero, Jung-guSeoul 04520Phone: +82 2 3782 4920

>SpainSolunionAvda. General Perón, 40Edificio Moda ShoppingPortal C, 3a planta28020 MadridPhone:+34 91 581 34 00

>Sri LankaPlease contact Singapore

>SwedenEuler Hermes Sverige filialDöbelnsgatan 24Box 729 101 34 StockholmPhone: +46 8 555 136 00

>SwitzerlandEuler Hermes SAZweigniederlassung WallisellenEuler Hermes Reinsurance AGRichtiplatz 18304 WallisellenPhone: + 41 44 283 65 65Phone: + 41 44 283 65 85 (Reinsurance AG)

>TaiwanEuler Hermes Taiwan Services LimitedPhone: +886 2 5550 0590

>ThailandAllianz C.P. General Insurance Co., Ltd323 United Center Building30 th FloorSilom RoadBangrak, Bangkok 10500Phone: +66 (0)2 264 8612

>TunisiaPlease contact Italy

>TurkeyEuler Hermes Sigorta A.S.Büyükdere Cad. No :100-102 Maya Akar Center Kat : 7 Esentepe34394 Şișli / IstanbulPhone: +90 212 2907610

>United Arab EmiratesEuler Hermesc/o Alliance Insurance PSC501, Al Warba Center P.O. Box 183957 Dubai Phone: +97142116000

>United KingdomEuler Hermes UK1 Canada SquareLondon E14 5DXPhone: + 44 20 7 512 9333

>United StatesEuler Hermes North America Insurance Company800 Red Brook BoulevardOwings Mills, MD 21117Phone: + 1 877 883 3224

>UruguayPlease contact Argentina

>VietnamPlease contact Singapore

Euler Hermes EconomicOutlookis published monthly by the Economic Research Departmentof Euler Hermes Group1, place des Saisons, F-92048 Paris La Défense Cedex e-mail: [email protected] - Tel. : +33 (0) 1 84 11 50 50

This document reflects the opinion of the Economic Research Department of Euler Hermes Group.

The information, analyses and forecasts contained herein are based on the Department's current

hypotheses and viewpoints and are of a prospective nature. In this regard, the Economic Research

Department of Euler Hermes Group has no responsibility for the consequences hereof and no

liability. Moreover, these analyses are subject to modification at any time.

www.eulerhermes.com

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