2011 was by no means an easy year, between the Arab Spring,
the Fukushima disaster, the sovereign debt crisis and
hesitant governance in Europe. The fragile recovery
experienced in the first half came to an abrupt halt in the
second and growth in world trade was halved during the
year. The deterioration is set to continue in 2012: world
growth is not expected to exceed 2.7%, after 3% in 2011.
Euler Hermes is forecasting sluggish growth in the first
half, which could pick up in the second half with
implementation of the announced parachute. Euro zone growth
is forecast at 0.3% in 2012 while growth in emerging
countries is expected to slow, down to 8.1% for China (from
9.2% in 2011) with growth of 3% for Brazil (as in 2011),
for example.
Differences within the euro zone, but all slowing
The sovereign debt crisis and public deficits had a severe
impact on the real economy in Europe in 2011. Lack of
visibility and limited financing of corporate and household
investment expenditure will undermine the growth outlook
for euro zone countries to varying degrees: from the
situation in Germany, which will stay above water with
growth of 0.8% in 2012 (down from 3% in 2011), to an
established recession in Greece (down by 2.7% in 2012 after
falling by 5.5% in 2011) in Portugal (down by 1.9% in 2012
after contracting by 1.4% in 2011) and in Italy, where the
economy will contract by 0.2% in 2012 after growth of 0.5%
in 2011. "In France, GDP growth will slow to 0.4%, from
1.6% in 2011. Like in the United States, the 2012 political
calendar will have an impact on activity, between
pre-electoral waiting and subsequent readjustment of
economic policy", explains Euler Hermes' Chief
Economist, Ludovic Subran.
Inflation and unemployment will also be major factors for
the euro zone's balance in 2012. Inflation is forecast to
slow from 2.7% in 2011 to 2.2% in 2012, contained by weaker
demand and more stable commodities prices. Unemployment,
however, will remain high, particularly in southern
European countries.
Looking further forward to 2013, growth is forecast to pick
up to 1.2%, once steps have been taken to reduce deficits
and circumscribe systemic risk within the euro zone.
Cautious optimism in the United States
In the United States, the recent encouraging economic
indicators give some ground for cautious optimism. GDP
growth is forecast at 1.8% in 2012 (1.9% in 2013) under the
impact of a slowdown in household consumption. Appreciation
of the dollar, which has recovered its safe-haven status
given the situation in Europe, could put a brake on
exports. Companies will continue to record profits but at a
more moderate pace. The Federal Reserve will pursue its
policy of monetary stimulus to save the economy, but there
is some concern as to the country's fiscal orientation up
to the elections in November.
BRIC economies are slowing but remain resilient
Although Brazil suffered an abrupt slowdown in the third
quarter of 2011, its fundamentals are sound and it remains
in a good position to cope with trends in the global
economic environment. Its economic growth is expected to
remain stable in 2012 at 3% (like in 2011) and to rise to
more than 3.5% in 2013, thanks to a firm labour market. The
main risk for this commodities exporting country remains
the possibility that commodities prices might stagnate or
even fall.
Despite the slowdown in the euro zone and its impact on
demand for Russian goods, Russia's growth is expected to
dip only slightly in 2012 (to 3.7%), thanks in part to the
fiscal stimulus measures expected to accompany the March
elections, before rising again to 4% in 2013. This forecast
is nonetheless dependent on trends in commodities prices
and on the performance of the agricultural sector, which
are both expected to fall moderately.
The domestic economy is the main growth driver in India
where growth is forecast to reach 7.5% in 2012 and 8% in
2013. However, the difficulties encountered in implementing
government policies and the lack of structural reform
limits the growth outlook. The monetary tightening in place
since 2010 has had an adverse impact on manufacturing and
on household consumption. Monetary policy is expected to
ease, which should boost growth as from 2012.
The Chinese economy slowed in 2011 under the impact of
monetary tightening and the global slowdown. GDP growth,
which had reached 9.2% in 2011, is expected to slow to 8.1%
in 2012. Imports will slow, but not as quickly as exports
as domestic demand remains buoyant. Investment, the main
engine of Chinese growth, has been slowing since 2011.
"The priority has switched from preventing the economy
from overheating to maintaining growth in the face of the
risk of a sudden slowdown in China, undoubtedly arising
from the euro zone's difficulties", says Ludovic
Subran. The drop in inflation should, however, enable the
government to concentrate more firmly on growth, by leaving
room for easing monetary policies. GDP growth is expected
to exceed 8.5% in 2013.
Country risk balance will remain negative
At the end of 2011, close to 60% of the countries in the
Euler Hermes panel of more than 240 countries and
territories posted levels of risk considered as significant
or high. And the trend is for risk to increase. In December
2011, Euler Hermes revised the country ratings of four
countries (Greece, Philippines, Slovenia and Czech
Republic) with mediocre growth outlooks. Turkey was the
only country to see an improvement in its rating with its
risk score lowered from 4 (high) to 3 (significant)
reflecting, despite still high external financing needs and
soaring inflation, an increasingly diversified and
responsive private sector and a more tightly controlled
economic policy.
Corporate insolvencies set to climb again in 2012,
particularly in Europe
Corporate insolvencies were still declining (down 3%) at
world level in 2011. In 2012, Euler Hermes expects
corporate insolvencies to increase by 12% in Europe and to
rebound clearly at world level with an increase of 3%.
Twenty-five of the thirty-three countries reviewed are
expected to move into the red in 2012, with European
countries topping the list, particularly those of the
Mediterranean region (up by 19%) which have been severely
weakened by the present crisis. Corporate insolvencies will
continue to decline in the Americas and the Asia-Pacific
region but with a clear change of pace, with decreases of
respectively 7% and 1% in 2012 compared with 12% and 5% in
2011. The reason is the much weaker growth outlook.
"The very marked fall in activity at world level,
combined with tighter monetary and fiscal policies, will be
reflected in 2012 by an upturn in corporate
insolvencies," says Wilfried Verstraete, Chairman of
Euler Hermes' Group Management Board. "This tendency
will be all the more pronounced in Europe where depressed
demand, flagging export outlets and the financing
difficulties encountered by businesses point to a difficult
convalescence, requiring businesses to pay particularly
close attention to their trade receivables
management."
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