Euler Hermes
Economic Outlook no. 1189-1190 |Macroeconomic, Risk and Insolvency Outlook
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issue of the fiscal cliff. In the event that no solution is found by the end of 2012, it would constitute the largest budget- ary adjustment in the country’s history (4.6% of GDP, compared with 3% in 1969 and around 2% in 1986) and an even greater risk for the global economy, given that the legal US debt ceiling could be reached in February/March 2013; the consensus, however, tilts in favor of a last-minute partial compro- mise. Second, in Italy, the elections scheduled in April but which will prob- ably be brought forward to February due to the return of Berlusconi and the resignation of the Monti government – the latter having now lost the confi- dence of the Berlusconi’s PdL party; the "post-Monti” phase is likely to be deci- sive in terms of retaining the markets’ confidence in Italy’s policy and the ongoing reforms implemented by the technocrat government since November 2011. Third, in Japan, the adoption of the 2013 budget in February, the end of the mandate of the Bank of Japan governor (Shirakawa) in April and the Upper House elections in late July 2013 are also key events to monitor. On the geopolitical front, the unfolding of Sino-Japanese tensions and the Iranian elections in June 2013 will be major events for the global pro- duction cycle (effect on the global sup- ply circuit and the oil price).
In the more medium term, the man- agement of excess global liquidity will constitute a currency risk and growth risk for emerging countries. The expan- sionary monetary policy should begin to bear fruit in mid-2013, paving the way for a gradual rebound in global growth, after which attention will be directed back to the issue of exit strate- gies. The excess liquidity accumulated since the onset of the crisis (up nearly 9% per year since 2009, versus 7% per year during the first half of the 2000s) will continue to increase the size of capital flows to emerging countries in the short term and fuel volatility in their exchange rates. For emerging countries, the risk of a resurgence of strong inflationary pressures is skewed
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on the upside in the medium term, whereas, for advanced countries, this constitutes a longer-term risk in light of the underutilization of production capacity. The monetary policy con- ducted thus far by advanced countries has led emerging countries to opt for increasingly low interest rates, thereby stimulating demand. When the global economy recovers, it is likely that demand for commodities in emerging countries will increase significantly, driving up prices and fueling global inflation.
The upturn in insolvencies could gather momentum in 2013 (+4% after +1% in 2012) The fall in corporate insolvencies, fol- lowing the worldwide surge in the wake of the 2008-2009 crisis (with a 57% leap between 2007 and 2009), was to be short-lived and limited in scale (9% over 2010 and 2011 com- bined). The decline in global activity that began in 2011, and continued into 2012 due to the drawn-out problems in the eurozone, quickly brought with it a trend break. Over the full year of 2012, our Global Insolvencies Index – see our methodological note on page 48 – is expected to record a +1% rise, which is down slightly on our initial expecta- tions (+3%). The two major expected trends are now confirmed: (i) on the one hand, a decline in insolvencies, slightly more rapid than expected, for the Americas (12%), where the rise in insolvencies in Brazil has been more than offset by pronounced falls in the United States and Canada, and for the Asia region, despite a few exceptions (Singapore, Australia, Taiwan); (ii) on the other hand, a rise in insolvencies in Europe, slightly less pronounced than expected yet significant for France (+2%), Northern Europe (+4%) and, especially, Mediterranean countries (+22%) – Germany (-1%) and the United Kingdom (-6%) are the main exceptions. Thus, at end-2012, the annual volume of corporate insolven- cies still exceeds the average level observed between 2000 and 2007 – before the crisis – in more than half of
the countries in our coverage universe: the notorious GIIPS (Greece, Ireland, Italy, Portugal and Spain), France and its regional peers (Belgium, Netherlands, Luxemburg, Switzerland), emerging European countries, the United Kingdom and the United States. For 2013, the downward revision in our macroeconomic forecasts sug- gests no overall improvement on the cards. On the contrary, forecasts for insolvencies have been adjusted upwards for all the world’s regions, with the exception of Asia (-1 pp), where insolvencies could neverthe- less pick up (slightly), albeit from a low level. In the Americas, the decline in insolvencies will continue at only half the pace of 2012, with the nega- tive trend in Brazil continuing (+15%). In Europe, a return to growth prom- ises at best to be either belated, in particular in the eurozone, or too small and patchy to give rise to any visible effects on the corporate fabric from 2013. Only four countries are likely to escape a rise (or stabiliza- tion) in insolvencies: the United Kingdom, Norway, Switzerland and, after seven years of rapid increase, Portugal. The rise in insolvencies is now expected to reach +2% in Northern Europe (+4 pp) and, above all, +19% in Southern Europe (+1 pp). All in all, our Global Insolvencies Index is likely to record another increase in 2013 (+4%), for the second year in a row, with the number of insolvencies once again far higher than the 2007 low, albeit without returning to the record level of 2009. For the Euler Hermes sample coun- tries as a whole (enlarged with data from Romania), this should represent more than 347,000 insolvencies, ver- sus 363,800 in 2009 (last peak) and less than 265,000 in 2007 (last low)._AB/MI/ML
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