trade wars: the force weakens - euler hermes€¦ · dubai to israel and morocco. first, the...

Economic Outlookno.1229October 2016

Special Reportwww.eulerhermes.com

Trade Wars: The Force Weakens

Economic Research

Economic Outlook no. 1229 | October 2016 | Special Report Euler Hermes

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Economic ResearchEuler Hermes Group

Economic Outlookno. 1229Special Report

Contents

The Economic Outlook is a monthly pub-lication released by the Economic ResearchDepartment of Euler Hermes Group. Thispublication is for the clients of Euler HermesGroup and available on subscription forother businesses and organizations. Repro-duction is authorised, so long as mentionof source is made. Contact the EconomicResearch Department Publication Director and Chief Economist:Ludovic Subran Macroeconomic Research and CountryRisk: Ana Boata, Stéphane Colliac, MahamoudIslam, Dan North, Daniela Ordóñez, ManfredStamer (Country Economists)Sector and Insolvency Research: MaximeLemerle (Head), Farah Allouche, Yann Lacroix,Marc Livinec, Didier Moizo (Sector Advisors)Support: Laetitia Giordanella (Office Man-ager), Ilan Goren (Content Manager), SaraAbaid, Thomas Cardiel, Sabrina Delsert, ElyasGalou, George Kibala Baeur, Benedetta Scotti(Research Assistants) Editor: Martine BenhadjGraphic Design: Claire Mabille Photo credits: Images courtesy of Allianz,Images courtesy of Pixabay (public domainunder Creative Commons CC0)For further information, contact the EconomicResearch Department of Euler Hermes Groupat 1, place des Saisons 92048 Paris La DéfenseCedex – Tel.: +33 (0) 1 84 11 50 46 – e-mail: [email protected] > EulerHermes Group is a limited company with aDirectoire and Supervisory Board, with acapital of EUR 13 645 323, RCS Nanterre 552040 594 Photoengraving: Talesca Imprimeur de Tal-ents – Permit October 2016; issn 1 162–2 881 ◾ October 15, 2016

3 EDITORIAL

4 THE (TRADE) FORCE WEAKENS

4 “Growth, I am NOT your father anymore”– Trade Vader

6 ZOOM The Commodities Menace

6 Few (Galactic) import Empires and not much striking back

8 The Return of the European (export) Jedis

9 ROGUE TRADE: WHY WILL IT NEVERBE THE SAME AGAIN?

9 Demand Stormtroopers

10 Death Star: Financial balkanization

12 May the force be with us: Political risk, protectionism and defiance

13 THE SEQUEL TRILOGY: WHICHINTERNATIONALIZATION STRATEGIES?

13 New Hope: Servitization and digitalization

14 ZOOM Attack of the (micro-multinationals)Clones

15 The Revenge of Investment: Closing in onconsumers

17 The Return of the Blocks, with or withoutFree Trade Agreements

20 OUR PUBLICATIONS

22 SUBSIDIARIES

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Euler Hermes Economic Outlook no. 1229 | October 2016 | Special Report

EDITORIAL

“Judge me by my size, do you?”LUDOVIC SUBRAN

In The Empire Strikes Back, Luke Skywalker is tasked with rais-ing his X-wing from the swamp but he complains that it istoo big, which frustrates Yoda — size matters not when itcomes to the Force and to life. It is certainly one of the mostmemorable quotes from the Emperor’s “little green friend.”Yoda is an icon and his nuggets of wisdom (often in his back-wards speak) do resonate with all of us, including econo-mists.While resilient (so far), the global economy is experiencinga succession of little (and not so little) crises from Brexit tothe end of the BRICS armor, which can break the compass ofmany companies, especially those who still want to try theirluck abroad. Trade, as a consequence, has been seriously dis-appointing over the past couple of years (deceleration ofChina, the US and the recessions in major emerging markets,the commodity counter shock, lack of forward visibility).More importantly, it appears that trade will never grow thesame again, staying below the +4% growth mark in volumeper annum. Why? Because of three major transformations:first, consumers all over the world demand more services(and experience) than goods; second, trade financing hasbecome more complex and costly (longer delays of pay-ments, currency risk, uneven credit conditions); and third,political risk and protectionism are on the rise (700+ pro-tectionist measures per year).So now what? Is it the end of globalization? Certainly not.Does it mean we need to rethink globalization? Yes, we do.Once a panacea, and the very objective (for survival) or manymercantilist countries (China, Germany, Canada) and com-

panies, it looks like the recipe for globalization will have toevolve to be more inclusive, trust-based and handled differ-ently by policy-makers and CEOs alike. The public and privatesectors have indeed had a hard time adapting to the newtrade paradigm. Hence the relative fiasco of mega tradedeals (TTIP between Europe and the U.S. for instance).At this point you may wonder why a Yoda quote in the title,right? In fact, what looks like impediments to global tradecould actually become opportunities for smaller — and moreagile — countries and companies in their quest to go global.Like a canoe in high tide, a younger company or a smaller(but grittier) country can succeed better under turbulencethan the Titanic can. Examples range from Singapore andDubai to Israel and Morocco. First, the digitalization and servi-tization of trade enables companies to immediately becomemultinationals (micro ones though) and not be limited totheir catchment area or by very costly physical operations.Second, the fast-moving liquidity, which spurs cross-borderM&A deals, enables companies to become international byacquiring others, thereby expanding their influence, theirbrand, their footprint. This happened even without a propermanufacturing base. Last, the defiance between countrieswill help rediscover regional blocks and allies, and align in-terests. This is particularly important for smaller countriesand companies to grow their influence abroad, slowly butsurely. In the end, this report also is a reminder for every companyout there to commit itself to trading safely, win or lose. Or asYoda said it: “Do. Or do not. There is no try [for trade].”

© Image courtesy of pixabay.com. Under CC0 Public Domain


“Growth, I am NOT yourfather anymore”– TradeVader

Global trade of goods and services is disappoint-ing. It is expected to slow down to +2.1% in 2016(from +3% in 2015).Global trade volume growth has increased at alimited pace over the past four years, twiceslower than the pre-crisis average (+7%). In fact,sluggishness has pushed the trade growth ratecloser to the GDP growth rate, and in 2016 itmight even dip below the headline figure (esti-mated at +2.4% in 2016). Other institutions,such as the World Trade Organization, haveraised concerns: they forecast +1.7% of tradegrowth (goods only) in 2016. In value terms, the trend is alarming. Globaltrade is set to decrease further this year (-2.9%in 2016, after -10.4% in 2015). Between 2014and 2016, the cumulated loss would amount to-USD3129bn, which is almost the equivalent ofGermany’s GDP.

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The “Trade” Force Weakens

1• Global trade growth weakens to +2.1% in 2016 involume. In 2017, it would grow by a modest +3.1%. In valueterms, global trade will contract by -2.9% this year. Between2014 and 2016, the world has lost -USD3129bn inexchanged goods and services, an amount close to the GDPof Germany. Demand shocks, the super slump incommodities prices, currency war, and domesticalization(lesser dependence on trade) explain this disappointingperformance. Importers such as China will only see+USD41bn of additional imports over 2016-17. At the sametime, the battle intensified between exporters. Germany isexpected to post +USD75bn of additional exports in 2016-17.

2• In the medium-term, growth in the volume of worldtrade is expected to stay below +4% annually. There arethree reasons behind this. First, structural shifts in globaldemand as the US and China have retreated for good, and(non-tradeable) services have grown faster than before inmost countries. Second, financial fragmentation makes tradeand debt financing (in USD) very complicated andcompetitive devaluation have failed. And last, the privatesector has been startled by rising political risks and growingprotectionisms measures (+352 in H1 2016).

3• Companies will have to find new alternatives to expandtheir business. First, they could rely on services anddigitalization. Our Enabling Digitalization Index (EDI) showsthat Germany, the Netherlands and Sweden are best placedto benefit from this transformation. Second, companies canrely on foreign investments to grow and internationalizedifferently. Cross-border M&A deals amounted to USD1.6tnlast year. Chinese companies have embarked on a shoppingspree. Last, in the wake of disappointing mega trade deals,rediscovering regional blocks appear as a necessary move.

MAHAMOUD ISLAM, DANIELA ORDOÑEZ AND LUDOVIC SUBRAN

+2.1%Global trade growth

in volume in 2016

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▶

There are four reasons – all of them largely in-tertwined – which explain the particularly dis-appointing trade momentum in both volumeand value terms, in the short run:> First, subdued demand. GDP growth hasbeen below +3% for six consecutive years as im-port-intensive consumption and investments,especially from the emerging world, have beenmissing in action. China, in particular, has reinedin its import bill;> Second, the commodities super slump.Global energy exports, for instance, are expectedto fall by an estimated -USD518bn this year, be-fore a timid recovery in 2017 (+USD280bn).Ferrous and non-ferrous commodity trade willalso contract further this year, by -USD58bn;> Third, a currency war. The appreciation ofthe USD following the Fed rate hike, and theneed to tighten the belt for commodity ex-porters and for China, have caused an unprece-dented lose-lose race for depreciations. Cur-rency depreciation against the USD is likely tostay the course in 2016. Currency depreciationsshaved up to -USD960bn off global trade in

2016. Note that the problem is that feweconomies will regain competitiveness fromthese depreciations (no J-curve effect in sight);> Fourth, domesticalization. In addition to aclear trend of value creation stemming fromservices (reaching 70% of GDP worldwide in2017; it was 66% in 2007). Recent stimuli (oildividend, tax cuts and subsidies, accommodativemonetary policies) have translated into a higherconsumption of non-tradable goods and serv-ices (care and leisure, real estate, financial serv-ices to name a few). As a reminder, services ex-ports only represent 7% of total GDP.

In 2017, global demand growth is expected toincrease moderately (+2.8% for global GDP), withmomentum in both advanced economies andemerging markets (Brazil and Russia to exit re-cession e.g.); in particular, net commodity ex-porters should regain some purchasing poweras prices gradually increase. Depreciation willease from 2017 onwards as major economiesalso move to a firmer footing with an active stim-ulus. Last, some reflation should spread across

most manufactured goods as producer pricesstop declining. All in all, global trade in volumewould increase by +3.1%, and by +5.7% in value.Yet, the world would still miss -USD1970bn com-pared to 2014, which is worth the GDP of Italy.


-15%

-10%

-5%

0%

5%

10%

Volume

Price

Value

13 14 15 16f 17f

forecasts

5.7%

-2.9%

-10.4%

2.0%

3.4% 3.6% 3.0% 2.1% 3.1%

Chart 1 Global trade growth

Sources: IHS, Euler Hermes

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Few (Galactic) importEmpires and not muchstriking backThe first reason of this trade slow motion is slug-gish demand. When ranking countries by addi-tional import needs, GDP growth, size, and cur-rency explain an unusual top 5: Germany(+USD77bn), the US (+USD66bn), Japan(+USD49bn), China (+USD41bn) and France(+USD40bn). While Germany tops the countriesto look at to find export opportunities, China isonly the 4th country on par with France when itcomes to additional imports over 2016-2017.China stopped being the world largest outletmore than a year ago, pushing down massivelyglobal trade figures. Europe became the regionof the world to go to for most exporters coun-tries continue to rely on imported goods andservices for consumption and investments.

We decided to cluster imports Empires in fourcategories using the types of atmospheres inthe Star Wars Galaxy. From Type I, where levelsof oxygen, nitrogen, and hydrogen are appro-priate and the air is breathable by the majority

of species to Type IV where the environmentsuit is required. To define these types of im-porters we used: (i) real imports growth tomeasure the strength of the demand effect; and(ii) imports gains in nominal terms (USD) to re-flect size and currency effects. Global tradegrowth average was used as the cutoff for realimports growth (+2.6% p.a. over 2016-17); theaverage additional import needs (+USD10bn)was used for nominal import gains over 2016-17. > Type I. Eurozone countries will performabove the global average in 2016-2017 with fairreal imports increasing and significant nominalgains in USD terms (+USD248bn from 2015 to2017). This growth will be underpinned by im-provements in private consumption and invest-ment. Some emerging markets will also see agradual pick-up in demand. In ASEAN, particu-larly Indonesia, Philippines and Vietnam, de-mand will strengthen because of rising incomesand favorable demographics. In India, an im-proved investment cycle will be associated withimports of capital goods. > Type II. Large (trading) economies such asthe US (+USD66bn) and China (+USD41bn)

Global energyexports will

decrease in 2016 by

-USD518bn

-600 -400 -200

Energy

Ferrous

Textile

Non-ferrous

Wood Paper

Agrifood

Chemical

Electric

Vehicles

Electronic

Machinery & Equipment

0 200 400

2017

2016

Chart 2 Sector gains for goods exports

Sources: IHS, Chelem, Euler Hermes

Unsurprisingly, it is the primary(commodities) sector which hasbeen shaping the contraction in thevalue of global trade. Producers ofprimary industrial commodities willprobably post another bad year,dragged down by lower prices.Stabilizing prices will notnecessarily help recover the lostpricing power in 2016.

The Commodities Menace

Energy (-USD518bn in trade value this year)and ferrous (-USD58bn) epitomize the biggerrisk around the low-for-longer commoditycountershock: (i) the inability to survive asdebt levels were already high in the sector;and (ii) the transmission of deflationary pres-sures downstream (machinery and equipmentsector e.g.). As a result, producers of low va-lue-added goods, without pricing power(drop in commodity prices and currency de-preciations for emerging markets) will faceadditional pressure. The agri-food industry is likely to thrive witha modest improvement (+USD15bn in 2016).Yet downside risks weigh on the outlook,with a strong decline in prices (-18% in 2015)and weak demand outlook for large emergingmarkets such as China, Russia, and Brazil. Sectors with more value-added content willprove resilient, benefitting from less sensitivityto prices. Exports of electronics and electricalindustries will rise by +USD58 and +USD37bn,respectively, benefitting from higher private

consumption in advanced economies andan expanding list of products included in theInformation Technology Agreement (ITA). Vehicle exports will post growth of +USD29bn.Outsourcing production in competitive ma-nufacturing hubs closer to the end user (asin from Japan to Mexico for US consumers)allows costs to be kept at a lower range andboost exports through regional sales. Ma-chinery andequipment ex-ports will post de-cent growththanks to betterpricing power(USD80bn). *

ZOOM

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will see a mixed performance with sizeable gainsbut below-trend real import growth. In bothcountries, a more service-oriented growth andmore autonomous manufacturing sectors – i.e.less dependent on foreign suppliers for com-modities for the US; of intermediate goods forChina – will translate into moderate importgrowth. > Type III. Some countries will perform wellbut gains will be small. These include countriesrelated to the Eurozone economic cycle (includ-ing Slovakia, Portugal, Turkey, Morocco and Côted’Ivoire), and countries combining positivegrowth prospects and strong business environ-ment (Israel, Peru). > Type IV. Commodity- rich countries will postlower import growth in USD terms as currencydepreciation (for Australia, Canada, and Chile)leads to higher imports costs but also becauseof demand contraction (for Brazil, Russia andNigeria). Countries with weak fundamentals(twin deficits, political stress), like Turkey, willrecord lower USD-denominated imports due toboth currency pressures and weak demandgrowth. The United Kingdom will see lowergrowth as Brexit concerns translate to lower in-vestment growth, while imports deterioratedwith GBP depreciation.

PolandNetherlands

PhilippinesIndonesiaDenmark

ItalyCzech Republic

SingaporeHong KongSwitzerland

BelgiumVietnam

IndiaSweden

South KoreaSpain

FranceChinaJapan

United StatesGermany 77

6649414038373434282525241916141413131311

Chart 3 Additional imports needs by country(cumulated change 2016-2017 in USDbn)

Sources: Chelem, Euler Hermes


-4% 2% 4% 10% 6% 7%

Impo

rt ne

eds

(cum

ulat

ed ch

ange

201

6-20

17 U

SD b

n)

Real imports average growth over 2016-2017

-2% 8%

-20

-10

0

10

20

30

40

50

Vietnam

Germany (4.5%; 77)

ZAF

Belgium

France

Denmark Italy The Netherlands

Czech Republic

Japan

Israel

Poland Romania

Switzerland

AT

Portugal MA

Mexico

Kenya Cote d'Ivoire Chile

UAE

Brazil

Peru

IE

Hungary Philippines

Slovakia

Turkey

COL

India

Thailand

Malaysia

Indonesia Taiwan

Singapore

Hong Kong

Australia SAU

Canada

South Korea

China

Russia

United States (1.2%; -66pp)

United Kingdom (2.3%; -81)

Argentina Greece

Type I

Type III

Type II

Type IV

Nigeria

Sweden

•••

•••

AT: AustriaCOL: ColombiaIE: IrelandMA: MoroccoUAE: United Arab EmiratesSAU: Saudi ArabiaZAF: South Africa

•••

•••

Chart 4 Global trade – Import drivers

▶

© Image courtesy helix-nebula-11155 of pixabay.com. Under CC0 Public Domain

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to volume growth, but (i) deteriorated price com-petitiveness due to rising wages and strong ap-preciation of the currency; and (ii) limited de-mand growth overseas will translate into reducedexports in USD (+USD33bn cumulated over2016-2017) and a loss of market share (-0.15ppover the same period). Countries with a strongmarket share (e.g. Saudi Arabia, Australia, andSouth Africa) and countries with a more diversi-fied export base (Canada, Mexico) may enjoystrong growth in volume terms but market shareswill probably decline without a price boost. Formanufacturing hubs (e.g. Turkey and Thailand),weaker currencies will lead to lower USD-deno-minated exports but boost volume growth. > Fourth, the Younglings (or Jedi Initiates)refer to markets that are not able to benefitfrom the Force. Exports growth is subdued, andnegative price pressures prevail. This includes:(i) countries highly dependent on Chinese de-mand (primary industrial commodities andAsian intermediate goods suppliers); (ii) expor-ters suffering from monetary tightening orstrong currency (United States) and (iii) marketsthat are affected by political deadlocks (Russia).

Even though Master Yoda thought that “A Jedi usesthe Force for knowledge and defense, never for at-tack”, in practice, some countries have demons-trated they can use the lightsaber better thanothers. According to our estimates, when rankingcountries by the cumulated export gains over2016-2017, the top 5 are Germany (+USD77bn),France (+USD42bn), Ireland (+USD38bn), Italy(+USD34bn) and Spain (+USD34bn). China onlycomes in sixth position with +USD33bn of ad-ditional exports expected in 2016 and 2017, clo-sely followed by Vietnam and Japan. The returnof the European Jedis is obvious.

The Return of the European(export) JedisSince most importers post decelerating de-mand, exporting has become harder and re-quires mastery. We have therefore establisheda typology of countries based on export perfor-mance corresponding to the four Jedi ranks. Thisnew world order uses real exports growth ave-rage over 2016-2017 and cumulated gains inglobal market share over the same period. > First, Jedi Masters are highly experiencedand demonstrate a great understanding ofthe Trade Force. They combine strong growthof real exports (above global average) with arise in market share. This includes core Eurozonecountries and countries in the same value chain(such as Romania and Poland). These will be-nefit from a combination of cheaper currency,eased financing conditions and greater demandgrowth in their main partners (namely EuropeanUnion members). This elite category also in-cludes countries with strong competitive ad-vantages (Vietnam, Philippines, Morocco andKenya), thanks to cheaper labor costs, and stra-

tegic positioning in regional value chains (low-cost manufacturing hubs). > Second, the Jedi Knights are able to in-crease market shares despite lower volumegrowth. These markets are experienced in tradeand specialized in high-value-added products,which makes them relatively less sensitive toprice shocks. Their safe-haven status meanstheir currencies are a bit overvalued. Yet, do-mestic companies benefit from very accommo-dative policies and thus are able to remain com-petitive in the global environment. Thesemarkets will have a hard time this year but mar-ket conditions would become less restrictivegradually next year with further monetary ea-sing from their Central Banks. This should resultin cheaper currencies and looser financingconditions. For example, Denmark, Switzerland,and Japan have already shifted policy rates intonegative territory to alleviate currency pressures.> Third, the Padawans (or Jedi Apprentices)are countries with strong potential. They willrecord strong growth in real exports but lose mar-ket share due to strong price pressures. In China,for instance, weaker RMB will provide some boost


-0.03

0.00

0.03

0.06

0.09

0.12

0.15

1% 2% 3% 4% 5% 6% 7%

Chan

ge o

f exp

orts

glo

bal m

arke

t sha

re b

etw

een

2015

and

201

7 (p

p)

Real export average growth over 2016-2017 (%)

-0.20

-0.400% 8%

0.18

Vietnam

Germany

Spain

Belgium

France

Denmark

Italy

The Netherlands Czech Republic

Japan Israel Poland

Romania Switzerland

Austria Portugal

Morocco Mexico

Kenya

Cote d'Ivoire Chile UAE

Brazil Peru

Ireland

Hungary

Philippines Slovakia

Turkey South Africa Colombia India Thailand

Malaysia Indonesia Taiwan Singapore Hong Kong Australia Saudi Arabia Canada

South Korea

China (3%; -0.15pp) Russia (2.3%; -0.17pp)

United States (0.1%; -0.23pp)

United Kingdom (3.1%; -0.34pp)

Argentina

Greece

//

The Jedi Knights

The Jedi Apprentices The Jedi Padawans

The Jedi Masters

Sri Lanka

Bangladesh

Nigeria

Sweden

•••

•••

Chart 5 Growth in real exports of goods and services and change in global market shares

AustriaHong Kong

IsraelUnited States

MexicoSwitzerland

PolandCzech Republic

DenmarkBelgiumSweden

NetherlandsJapan

VietnamChinaSpain

ItalyIrelandFrance

Germany 75423834343332282827231513131313111110109

Chart 6 Exports gains(cumulated change 2016-2017)


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Unfortunately, there is little hope that trade re-covers fully to pre-crisis tempo, even post 2017.Some of the reasons behind the short-term slumpresemble structural breaks, which could explainwhy trade will never be the same again. Threewarning lights pop-up on the dashboard of thetrade spaceship: shifts in demand, financial balka-nization (USD financing shortage and ineffectivecurrency wars) and political risks (protectionism).

Demand StormtroopersGlobal demand is struggling to find a solid foot-ing as cyclical shocks become more frequent.2015 marked the fourth consecutive year inwhich GDP growth has been below the +3%threshold. This situation will last until 2017 atleast. More importantly, it seems that lookingahead the alignment of stars (US, Europe, Chinaand emerging markets all growing full speed atthe same time) will not happen anytime soon.This is one of the unexpected consequences ofthe global financial crisis, seven years on. China and the US have been retreating fromtheir role as global trade engines:1• China is going through a transition. Firstly, itpivots from growth led by investment and exports(manufacturing) to growth led by consumption

and services. At the same time, it shifts from pro-ducing low value-added goods to high-tech prod-ucts. Then there is the move to a more sustainablegrowth, which is less resource and credit-intensive. 2• In the US, the energy revolution has pavedthe way for two structural changes. The first oneis the decrease of energy imports as the US be-came autarkic. The second one is the competi-tiveness improvement for downstream industriesdue to lower input costs. We estimate that a 1ppdecrease in real import demand growth from theUS could shave up to 0.2pp of global trade growth.

Several local shocks threaten the future of trade.They are more frequent and have more negativespillovers on neighbor countries. One exampleis Brexit since the UK is one of the world top im-porters. This was a low blow for Europe at a timewhen the recovery also emanated from strongerintra-regional trade.On top of country-specific demand loopholes,two major changes may explain why trade maynever exceed +4% of annual growth in volumeever again. The first change is the shortening of global valuechains. The second is the growing share of (non-tradeable) services in value-added creation. Forthe first one, lower investment growth (often

more import-intensive than consumption) trans-lates into lower import growth. In addition, verticalintegration of large economies affects global sup-ply chains. This is the case for China in its quest toabsorb first tier suppliers from Taiwan for instance,or multinationals which decide to compact valuechain or re-shore when competitiveness is re-stored to gain quality. Import substitution hasplayed a growing role in regional blocs. As for the second change, it is not news that theshare of services in value-added creation hasbeen growing steadily over the past ten years.Yet, since the crisis, this trend has accelerated onthe back of: (i) recent fiscal and monetary stimuliwhich supported domestic services in particular(financial, real estate, leisure); and (ii) the eco-nomic renaissance coming from the digital andtech revolutions whereby people have replacedbasic materials and capital goods as inputs.

1pp decrease in realimport demand

growth from Chinacould shave up to

0.3pp of globaltrade growth

64

65

66

67

68

69

70

71

13

14

15

16

17

18

19

20Manufacturing, value added (% of GDP, right)Services (% of GDP, left)

17f16f15141312111009080706050403020100

Forecasts

Chart 7 Services and manufacturing value-added(as a percentage of GDP)


Rogue trade: Why will itnever be the same again?

▶


10


Death Star: Financialbalkanization Financial globalization has been one of the maindrivers behind the acceleration of trade global-ization, and the financial crisis one of the maincatalysts of the global trade collapse in 2009.Looking forward, it seems that one of the keyreasons for subdued trade in the medium-runwill be financial fragmentation. Shortage of USDfinancing, currency carnage, and capital controlsare symptoms of segregated financial basins.Global governance has failed to deliver a quickfix to further balkanization of the financial flows.

A dollar drought Dollar debt and trade grew hand-in-hand until2014, as high commodity prices and low-inter-est rates led some commodity exporters to addproduction capacity (e.g. +USD800bn wereadded to their debt stockpile between 2006 and2014 only for the oil sector according to theBIS). Since cash flows were denominated in dol-lars and were rising, they were used as implicitcollateral allowing more dollar debt issuance. Further tightening by the Federal Reserve of the

US and low for longer commodity prices havecaused rising mismatches between dollar lia-bilities and dollar assets at the country, sectorand company level, creating an urge for delever-aging and inhibiting trade flows in so doing. Inaddition, when an economy loses access to theinternational capital market, corporates have toredeem their debt instead of refinancing it andoften cut investments, which leads to fewer im-ports of capital goods. When Central Banks lackforeign exchange reserves (unwillingness toshare, sudden stops or simply fixed exchangerates), this downward spiral is accelerated andthe probability of liquidity squeeze is increasingin the banking sector – especially when domes-tic credit is not crunching yet – making banksless supportive. Disruptions in financial flows can also help ex-plain the shortage. The ring-fencing of the worldfinancial system is structural, a legacy from theGreat Recession (2008-09) when Europeanbanks lost their leadership in the intermediationof global USD financing and never recovered it.As a result, cross-border bank flows have beenre-oriented and banks got regionalized, espe-cially for trade financing.

80

85

90

95

100

105

110ratio imports/production (volume 100=2008, lhs)

ratio cross-border/local claims (%, rhs)

16151413121110090807060504030201

Chart 8 Import content of production index*and ratio of international-to-national bank liabilities

* import/productionSources: BIS, CPB, Euler Hermes

© Image courtesy star-war

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The world is now divided into several sets of re-gional banks/peers. When a leading country ina region is losing steam (e.g. Brazil), banks ef-fectively reduce their supply of financing fortrade locally (e.g. in Latin America). Last but notleast, new rounds of capital controls have beenput in place around the world, especially inemerging markets, to avoid capital flight.

Currency carnage has failed to boost tradeglobally The recent wave of currency depreciationsaround the world may have nudged global tradefor good – and mostly negatively. Most countries,especially commodity exporters, were forced todepreciate (and raise interest rates) due to capitaloutflows, causing imports to contract (and tradebalance to improve because of belt-tightening). A decrease in the value of currency can be usefulfor countries with improved financing conditionsand for non-primary industrial commodity pro-ducers. For such economies, cheaper currencies

may translate into better price competitiveness,which would lead to an increase in export volumes. In the end, while many currencies depreciated,this did not lead to export growth (J-curve effect)and only non-commodity exporters with amarked improvement in financing conditionsusually succeeded in expanding their trade bal-ance. Colombia, Russia, Brazil, Chile, Peru, Indone-sia are as many examples of countries without aproper rebound post-currency depreciations.Among large economies, the Eurozone andJapan would benefit the most as a positive feed-back loop took place between exports and GDPgrowth. In China, a cheaper RMB will providesome momentum. Yet mixed financing condi-tions for exporting companies – lower cost ofdomestic credit, but high debt, higher cost ofexternal funding – will act as a drag.


Mexico Czech Republic

Romania Philippines

Vietnam

Australia

Hungary

South Africa Kenya

UAE Poland Japan Spain Sri Lanka

Belgium

Slovakia

Germany The Netherlands Canada

France Sweden Bangladesh

Italy UK

Turkey Malaysia

Ireland

Morocco Saudi Arabia Portugal

China Nigeria

Taiwan

Brazil Singapore

Austria US

Russia South Korea

Switzerland Denmark

Peru

Chile

Hong Kong Indonesia

Israel Colombia

India

Improving trade balance Deteriorating trade balance

Real

exp

orts

gro

wth

bet

wee

n 20

13 a

nd 2

015

Real Effective Exchange Rate growth between 2013 and 2015

-6%

0%

6%

12%

18%

24%

30%

-26% -20% -14% -8% -2% 4% 10% 16% 22%

Thailand

Chart 9 Real export growth versus growth in real effective exchange rate(between 2013 and 2015)

▶

rs-1703175 of pixabay.com. Under CC0 Public Domain

12


Number six is Canada which shows that even ifCanada has signed a plethora of bilateral tradeagreements, services can be a touchier subject;3• Less classic (but very used): Supportivemeasures can also come into play and are no-tably used by OECD countries (public banks, ex-port promotion agencies, direct subsidies). TheUK runs an extensive support network for en-terprises. Its agency had a budget of EUR368mn,with specific sector and geographic priorities.China, probably the most aggressive player, hasdeveloped various programs to develop clusters,providing companies with cash bonuses, dis-count services, and preferential tax rates. TheUnited States often supports exporters indirectlythrough tax cuts.

To get an idea of the landscape, we charted av-erage tariffs and the number of countervailingmeasures as reported to the World Trade Or-ganization (WTO), highlighting fair, unfair andlame players when it comes to open trade.

May the force be with us:Political risk, protectionism,and defiance

Multiple political hotspots around the globe willcontinue to weigh on confidence, driving coun-tries and multinationals to take a “wait and see”position. Some simply shore up defenses andclose up to the world. From soured relations(and sanctions) between the West and Russia,to the risks of conflict in the Middle East to risingdiscontent in Brazil and South Africa, investorsand companies have been overwhelmed withbad news coming from the political sphere. Ifone adds uncertain processes (elections, megatrade partnerships, Brexit), this has comforteda standstill weighing on trade prospects. Busi-nesses can sustain populism and policy mistakesbut could go belly up if their assets are confis-cated or expropriated.More importantly, protectionism could becomemore frequent and disrupt the business climate.In 2014, 792 protectionist measures were

adopted. In 2015, there were 705 new ones; andin H1 2016, 352 on top. For a country like Russia,this adds up to 202 measures since 2014. In thisflop 5 for open trade, India (158), the US (126),Brazil (107) and Indonesia (94) follow.From the itemized list, one can observe that pro-tectionism is becoming more diverse:1• Classic: Trade barriers such as high tariffsand quotas. India (15.6% tariff on average) Brazil(14.7%), Argentina (13.6%) or Turkey (12%) areknown for resorting to tariffs. Standards andnorms are also a very known way to protect do-mestic production; 2• Almost classic (and growing): Protection-ism is rampant in services as governmentstamper with licenses and the regulatory frame-work. Courier services and broadcasting areclosed for foreign investment in China. In India,only Indian nationals can obtain full licenses forlegal services. In Brazil, air transport is almostclosed for foreign investors with equity partici-pation limited at 20% of voting capital. Whenranking countries for trade restrictiveness: In-donesia, China, India, Russia and Brazil come first.

In the first halfof 2016,

352new

protectionistmeasures

were adoptedworldwide

Sources: WTO, Euler Hermes

•••

=Non fair-play

<Fair-play

•••

China - 66

South Korea

Brazil

India -36

Indonesia

United States

South Africa

Argentina

Taiwan

Thailand

Canada

Malaysia

Turkey Venezuela

Pakistan

Viet Nam

Australia

Italy France

Germany Spain Israel

Mexico

Côte d'Ivoire

Colombia

Belgium Hungary

Norway

Philippines

Sri Lanka

Russia

Aver

age

tarif

fs -

2014

Size of the bubble: number of protectionist measuresas of July 2016:

900500200

0

10

15

20

0 2 6 10 66

5

4 8

Number of countervailing measures as of 2015

UAE

Chart 10 Protectionism at a glance

13


With global trade below trend, companies willhave to find alternative strategies to interna-tionalize. Mirroring the three impediments totrade (demand shift, financial fragmentationand political risk), we believe there are three so-lutions for companies (and policy makers alike):digitize and focus on services even more, useinvestment flows to conquer the world (andrepatriate dividends later), and work on thebackdrop, including second generation tradepartnerships.

New Hope: Servitization anddigitalization

To quote Master Yoda once more: “Do. Or donot. There is no try.”. It is the same with serviti-zation and digitalization. Companies have toadapt fast and those who can use these trendswill be better placed to go global.

New force #1: ServitizationTrade in services has been less disrupted com-pared to trade in goods. In 2015, services exports

as reported in the balance of payments ac-counted for 6.7% of global GDP (stable from2014), while goods exports decreased to 22%(from 24%). Though in 2016, we expect a de-crease worth -USD140bn, it reflects the sharpdecline in transport services which account for18% of total service exports due to the lowerperformance of marine transports. Note that inthe first half of 2016, the Baltic Dry Index is still50% below the average of 2014. Yet apart fromthis sub-sector, we expect a positive increase of+USD40bn in traded services. In 2017, trade inservices will post an increase of +USD268bn.

Structurally, the higher consumption of servicesin large emerging markets like China, the dedi-cated stimuli in advanced economies, and thevalue-creation from user experience and newcare models are changing the internationaliza-tion landscape. In China, for instance, serviceswent above the 50% mark in GDP in 2015 (from48.1% in 2014), the rise of the middle class isset to be accompanied with larger services im-ports. More importantly, companies are adapt-

The sequel trilogy: Whichinternationalization strategies?

▶

© dusty-sky. Image courtesy of Tim de Groot, unsplash.com, under Creative Commons Zero

ing fast through servitization that is the deliveryof a service component as an added value, whenproviding products. From the automotive in-dustry diversifying into financial services to thetelecom operators administering after-salesservice for virtually any company to the trans-formative impact of the internet of things (IoT),servitization of business has been on the rise.Equipping younger companies with servitizationtechniques early on in their internationalizationis a good way to make sure that they will con-tinue to innovate.

New Force #2: DigitalizationAnother buzz word, digitalization, actually meanssomething for the future of trade. Data is a newcommodity and data flows are growing very rap-idly, and are immune to the globalization slow-down. According to McKinsey, the amount ofcross-border flows of data has grown 45 timessince 2005 that is +4000% in 10 years, leadingto 211 terabits of data flowing each second.

14


The big data bang is expected to continue, mul-tiplying by x6.6 by 2020. Companies have tocontinue to tap into this infinite driver for open-ness, the same way the finance sector did earlieron. We estimate that digitalization of businessactivities contributes to 9.4% of the annualglobal economic output, of which 3.6% is dueexclusively to cross-border transactions. We ex-pect this contribution to increase rapidly in com-ing years and reach 16.6% of global economicoutput in 2020 (7.4% for cross-border transac-tions).

We built a proprietary weighted index to illus-trate countries’ ability to provide the necessaryenvironment for effective internationalizationof companies in the digitalization era: the En-abling Digitalization Index (EH EDI). 135 coun-tries were included in the analysis. The indexincludes: (i) the quality of connectivity assessedby the number of secure servers, the ratio ofinternet users, and the ratio of telephone linesavailable to population; the World Bank’s (ii)Logistic Performance Index; and (iii) DoingBusiness Index. Germany, the Netherlands, and

Sweden lead the ranking. The UK, Singaporeand the US rank in the top 10 countries best po-sitioned to foster the international developmentof enterprises through digital. No emergingmarkets made it to the Top 20. None of the BRICSrank in the top 40 and China ranks 44th.The dig-ital divide lingers.

0% 20% 40% 60% 80% 100%

Traditional SMEsMicro-multinationals

Yearly averagegrowth rate of sales

(2010-2014)

Market share ofTop5 businesses

Market shareof Newcomers

3-year survival ratefor exporters

Share of firmsexporting

Chart 12 Micro-multinationals and SMEsWhich fares better?

Sources: eBay, Euler Hermes

While most companies are sufferingfrom the structural slowdown inglobal trade, others have provenbeing adapting better: the micro-multinationals. These arecompanies, often small, and young,which decided to leveragetechnology (and notably theinternet), to develop marketactivities worldwide, directly. UsingeBay Marketplace data, we foundthe following:

Attack of the(micro-multinationals) Clones

✓ Fact #1: Micro-multinationals export more– While only on average only 20% of traditionalSMEs export, 97% of the micro-multinationalsembrace the adventure of exporting. ✓ Fact #2: Micro-multinationals survivebetter in the exporting field – The three-year survival rate is just 19% of traditionalSMEs, while 66% of micro-multinationalscontinue to export after three years.✓ Fact #3: Micro-multinationals grow faster– Exports on eBay platform increased bynearly 19% on average per year between2010 and 2014, while exports of traditionalSMEs only grew by 6%.

✓ Fact #4: Better opportunities for new-comers – Newcomer businesses in the eBayMarketplace are able to capture 55% of theexport market in just one year, whereas, glo-bally, new traditional SMEs enterprises makeup only 3% of the traditional export market.✓ Fact #5: The value of export is betterdistributed among the population (betterGini coefficient) – Among traditional SMEs,the top 5% of exporters account for 76% ofthe export market. This is not the case ofSMEs using the eBay marketplace where thetop 5 micro-multinationals only account for44% of the exports on the eBay platform. *

ZOOM

0% 20% 40% 60% 80% 100%

Business environment

Logistic performance

Connectivity quality

India (#74)Brazil (#62)

Russia (#54)China (#44)

South Africa (#42)Portugal (#25)

Lithuania (#24)Estonia (#23)

Spain (#22)UAE (#21)

Ireland (#20)Belgium (#19)

New Zealand (#18)Finland (#17)

Australia (#16)Japan (#15)

France (#14)Norway (#13)Austria (#12)

Canada (#11)Iceland (#10)

US (#9)Luxembourg (#8)

Denmark (#7)Singapore (#6)

Switzerland (#5)UK (#4)

Sweden (#3)Netherlands (#2)

Germany (#1)

Chart 11 Euler Hermes Enabling Digitalization Index (Ranking out of 135 countries)

Sources: World Bank, Euler Hermes calculations

Digitalizationcontributes to

9.4% of the annual

global economicoutput

3.6% is due exclusively to

cross-bordertransactions

15


USD1.6tn worth ofcross-borderM&A dealsin 2015

economies continued to perform relatively well.India and Vietnam are two clear examples. The vehicles for Foreign Direct Investments (FDI)were mostly cross-border Mergers and Acqui-sitions (M&A). Buyers splashed out USD4tn onM&A deals in 2015, including minority invest-ments. This marks the highest amount ever, sur-passing the previous record set in 2007. Cross-border deals contributed to this dynamic. In2015, these grew +18% compared with +13%for M&A deals in total, reaching USD 1.6tn. Con-sumer-related activities such as pharmaceuticalsand agrifood were the most targeted sectors,representing 1 out of 4 cross-border deals. Eu-ropean corporates are increasingly targeted byforeign acquisitions both from the US and Asia,notably Chinese and Japanese firms. These dealsare boosted by a weak Euro (compared to theUSD), abundant liquidity, and cheap debt. China is becoming a key global player. Acquisi-tions by Chinese corporates have peaked atUSD596bn in 2015, almost a fifth of which werecross-border deals. Companies from China wereparticularly active in the technology & commu-nication and consumer sectors, close to 45% oftheir acquisitions abroad. The trend is alignedwith the economic model adjustment initiatedby the government. China is seeking not onlyreturns but also advanced technology.

The Revenge of Investment:Closing in on consumersCompanies may want to focus on increasingsales and investment earnings from overseasmarkets selling directly to the end-buyers, in-stead of export revenues.In 2015, global net foreign direct investment in-flows increased by +22% (after -20% in 2014).This was supported to a large extent by a rise ininvestment directed to the Eurozone and theUS. In emerging markets, the trend was mixed.Key large economies were deemed less attrac-tive as demand contracted (Brazil and Russia)or economic growth showed signs of weak-nesses (China). On the contrary, accelerating

0

100

200

300

400

500

600

700

Foreigners - buying chinese companies

China - buying foreign companies

151413121110090807060504

Chart 13 Number of M&A deals initiated onChinese companies or by Chinese companies

Sources: Bloomberg, Euler Hermes

© Image courtesy of Mathias Blum, flickr.com, under creative commons license 2.0 no derivs

16


Though we expect a more modest increase thisyear, there are three reasons to believe FDIsflows will offset (partially) disappointing trade: > First, households’ consumption accountedfor 59% GDP in 2015, up from 58.3% GDP in 2014.Companies will need to get closer to their cus-tomer to understand their needs better (and behedged against currency volatility). > Second, cash-rich companies in Japan orthe US (with appreciating currencies) couldchoose to invest in countries where assets arecheaper.> Third, improving profits (+5.8% 4q/4q inQ2 2016 in the Eurozone), poor returns oninvestment in some countries (Japan, Taiwan,and South Korea) and excess savings (China)are looking for safe havens where demand willeventually come, more certainly abroad, for bothprotection and promotion reasons.

To find out destination countries for investment,the outlook and business climate matter. This iswhy FDIs have returned to Europe and are con-tinuing to flow in Vietnam or Morocco. A solid

financial system, a hard currency, a strong reg-ulatory framework, good payment behavior be-tween companies, low taxation, and a sizeabledomestic market are all among key determi-nants for FDI inflows, as per the literature. To goone step further, we decided to rank emergingmarkets by GDP growth in 2016 and map theestimated return of earnings (RoE) for FDI (In-come paid on FDI over FDI inward stock) usinga 3.8% (average growth) cutoff. Asian marketsand particularly the Asian giants – China, Indiaand ASEAN – lead the pack as they offer bothhigh growth and high returns. These are fol-lowed by countries with strong growth and fairlydecent returns in North Africa (Morocco) andEastern Europe (Turkey, Romania, Poland, Slo-vakia). The latter present improved growthprospects thanks to the Eurozone’s recovery andprovide solid returns.

+5.8% 4q/4q

profits growthin Q2 2016

in the Eurozone

0

2

4

6

8

10

12

14 Return of Earnings for FDI

GDP growth F2016

Braz

ilRu

ssia

Sout

h Af

rica

Chile

Hung

ary

Mex

icoSl

oven

iaLit

huan

iaLa

tvia

Colo

mbi

aTh

aila

ndSa

udi A

rabi

aSl

ovak

iaPo

land

Turk

eyRo

man

iaM

oroc

coIn

done

siaPh

ilippi

nes

Chin

aIn

dia

Chart 14 GDP growth and Return of Earnings for FDI (Income paid on FDI over FDI inward stock)


17


The Return of the Blocks,with or without Free TradeAgreementsAlthough global trade integration paused, globaltrade organization is still region-centric. Threeregional blocks, the European Union (32% ofglobal trade flows), Asia and Middle-East (39%)and North America (16%) account for 87% ofglobal trade. Intra-trade represents more thanhalf of the European Union and Asia’s tradeflows, it is 44% for North America. Rediscoveringregional epicenters (for Latin America, EasternEurope, ASEAN or the Europe-Middle East-Africaregion) and the power of gravity will be essentialto find the critical mass and yet trade safely.

In the meantime, horizontal trade agreementsseem to have lost momentum. In the early1990’s a slew of free-trade agreements andtreaties – from Maastricht to NAFTA – seemedto take the world by storm. A generation later,

mega Free Trade Agreements (FTA’s) are at acritical crossroads as the benefits of globaliza-tion, once acknowledged for all (cheaper prices,new jobs, innovation) seem to only benefit afew while the middle class fears job destruction.Meanwhile, SMEs do not seem to be able to ben-efit from bigger but more complex playgrounds.Both US-led mega trade deals seem to bestalling. The Trans-Pacific Partnership (TPP),which connects Pacific nations from the US toSouth-East Asia, or the Transatlantic Trade andInvestment Partnership (TTIP), which links theEU and the US, could have replaced global tradegovernance in the longer-run.

Mega-scale agreements aim at fostering tradeand investment integration but also at an align-ment of business practices. Yet, without an ac-companying social compact (safety nets, transi-tion subsidies) and more transparency, the manon the street seem to oppose such deals on bothsides of the Ocean, in spite of immense benefits.

0%

10%

20%

30%

40%

50%

60%

70%

*European Union** North American Free Trade Agreement*** and Central America

AfricaSouthAmerica

***

NAFTA** EU28*Asia andMiddle East

Total trade (% Global trade, right)Intra-trade (% group's total trade, left)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Chart 15 Intra-trade and trade per region

Sources: UNCTAD, Euler Hermes

© Image courtesy r2d2-933066 of pixabay.com. Under CC0 Public Domain


What does the future hold? Certainly a differentset of alliances. We believe that three blockshave yet to be reorganized: the Americas, witha new role for the US, the EMEA region, with theEurozone at its center, and Asia led by both Japanand China. These very instinctive and geograph-ical regions hold secrets to their coherence: theirsize, the structure of their value chains, and theirrelative financial independence. In each block,the epicenter, once a colonial super power hasto revisit its influence through better co-devel-opment. Though consumer demand, know-how, and hard currency will certainly continueto come from these epicenters, it is importantto start reinventing equitable trade basins toavoid massive failures.We have three blocks:1• The vertical basin – Europe has to consol-idate its east and its south. In the South, selec-

tivity and cautiousness will be vital for compa-nies as the outlook for the Middle East is stillrisky. However, the advantage of backwardnessof African countries (including Côte d’Ivoire,Ethiopia, Kenya, and Tanzania) offer unprece-dented options for developing economic tiesbeyond commodities. Manufacturing, innova-tion, and leapfrogging consumers are importanttrends in the region. Some hubs (Morocco, Côted’Ivoire, Kenya) and future super powers (Nige-ria e.g.) need to be revisited, especially when itcomes to financing growth.

2• Instead of TaPPing into cross-ocean trades,the US should provide ammunition to the widerAmerican trade basin to be strengthened. Thedisappointing Brazilian outlook and the difficultreturn of Argentina have halted trade momen-tum in South America. The Pacific Alliance coun-

Lowerregional economic

imbalances

Businessinternationalization

Economicupgrading

Improvedaccess to local

suppliers

Overcapacityreduction

1 2 3

54 Re-ducing regional

imbalances within China, fostering a trade-led growth strategy in West China.

China seeks to secure access to

primary commodities through more

efficient supply corridors.

Chinese firms are likely to be well

positioned to obtain tenders in relation to

infrastructure projects.

This will benefit

China’s exporters of construction materials

(including steel and iron ore) and contribute to the

reduction in domestic overcapacity.

In-creasing connecti-

vity and cooperation with high income markets

(Eurozone) will probably translate into higher

technology sharing.

Chart 16 Five OBORtunities for China

USD1.6tn the total firepower

of the One Belt OneRoad project

Source: Euler Hermes

18

19


tries and Mercosur countries have yet to findtheir complementarities but all thrive on dollarterms. Better innovation sharing and mobility(including of human capital) will be key in re-developing the partnership and providing a plat-form for regional mega companies.While mega trade deals take more time to bedelivered, each individual country is revising itsown trade policy. One concept that recentlyemerged is called progressive trade policy. Aprogressive trade policy aims at being relevant,transparent, inclusive and value-based. It is sup-posed to avoid any type of dumping, care forredistribution in benefits and help create valuealong the way. Canada and the EU are at theforefront of such policy-making. Yet many coun-tries still struggle to find the right balance be-tween offense and defense. The best exampleis China.

3• Last, China decided to launch its ownmega trade deal called the One Belt One Roadinitiative. Its strategic goals include connectivityand cooperation on a vast scale by reinforcingtrading routes from Asia to Africa, Middle East,and Western Europe. In practice it is a muchmore regional initiative, aiming at realigning theAsian Tigers. Outside of China, the impact wouldbe felt through a capital boost in ASEAN, SouthAsia (Pakistan, Sri Lanka) and East Africa. It wouldgo through a gradual increase in demand fromChina for strategic natural resources (e.g. Myan-mar for natural gas, Mongolia for copper). An-other channel would the rise in competitivenessas infrastructure for trade improves (Cambodia,Myanmar, Laos and Vietnam, East African mar-kets). Some projects have already started. Forexample, in ASEAN, the Malaysia-China KuantanIndustrial Park project is ongoing with an invest-

ment of about USD3.4bn. In South Asia, theChina-Pakistan Economic Corridor project is inprogress. So far, the total firepower of the OBORproject, when incorporating the funds of theAsian Infrastructure Investment Bank, the Chi-nese silk Fund, BRIC New Development Bank,the promises of both Chinese development bankand China’s sovereign wealth funds, is worth atleast USD1.6tn.+

China’scapitalboost

1 2

3

China’s demand

boost (goods and financing)

Competitivenessgains through

enhancedinfrastructure

ASEAN

Neighboringcountries

rich in strategic naturalresources (Myanmar,

Nepal...)

SouthAsia

(Pakistan, Sri Lanka)

Eastern Europe

EuropeanUnion

EastAfrica

USA

Chart 17 Who could win outside of China?

Source: Euler Hermes

20


Economic ResearchEuler Hermes Group

Economic Outlookand otherpublications

Already issued:

no. 1208-1209 ◽ Macroeconomic, Country Risk and Global Sector Outlook Growth: A giant with feet of clay

no. 1210 ◽ Special Report The global automotive market: Back on four wheels

no. 1211-1212 ◽ Business Insolvency Worldwide A rotten apple can spoil the barrel Payment terms, past dues, non-payments and insolvencies: What to expect in 2015?

no. 1213 ◽ Special Report International debt collection:The Good, the Bad and the Ugly

no. 1214 ◽ Macroeconomic and Country Risk Outlook Overview 2015: Not such a Grimm tale but no fabled happy ending

no. 1215 ◽ Special Report Global trade: What’s cooking? Introducing twelve countries’ recipes for boosting exports no. 1216 ◽ Macroeconomic, Country Risk and Global Sector Outlook Focus on the signal and ignore the noise

no. 1217-1218 ◽ Macroeconomic, Country Risk and Global Sector Outlook Riding into risks or recovery? no. 1219 ◽ Special Report Auto market – a live wire

no. 1220-1221 ◽ Business Insolvency Worldwide The insolvency U-turn

no. 1222 ◽ Macroeconomic and Country Risk Outlook The 7 dwarfs of global growth

no. 1223 ◽ Global Sector Outlook Let the Sector games begin

no. 1224-1225 ◽ Special Report Around the World in eight maps

no. 1226- 1227 ◽ Macroeconomic and Country Risk Outlook The Price of Growth no. 1228 ◽ Special Report Public bumpers for the automotive market

no. 1229 ◽ Special Report Trade Wars: The Force Weakens

To come:

no. 1230 ◽ Special Report

Macroeconomicand Country Risk Outlook

EconomicOutlook no. 1226-1227Summer 2016

www.eulerhermes.com

The Price of GrowthGlobal growth will slow down to+2.4% in 2016, its lowest level sincethe great recession

Economic Research

Economic Outlookno.1224-1225Spring 2016

Special Atlaswww.eulerhermes.com

Around the Worldin eight maps

Economic Research

Global Sector Outlook

Economic Outlookno.1223 February 2016

www.eulerhermes.com

Let the Sectorgames beginCompanies are having an early startat their own Olympics

Economic Research

Economic Outlookno.1228September 2016

Special Reportwww.eulerhermes.com

Public bumpers for the automotive market

Economic Research


http://www.eulerhermes.com/economic-research/country-risks/Pages/country-reports-risk-map.aspx

http://www.eulerhermes.com/economic-research/economic-publications/Pages/economic-insights.aspx

https://www.youtube.com/user/eulerhermesgroup

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◽Aeronautics ◽Agrifood ◽Automotive ◽Chemicals◽Construction ◽Energy ◽Household Equipment ◽Information & Communication

Technologies

◽Machinery & Equipment ◽Metal ◽Paper ◽Pharmaceuticals ◽Retail ◽Textile ◽Transportation

IndustryReport

GlobalSectorReport

http://www.eulerhermes.com/economic-research/economic-publica-tions/Pages/Weekly-Export-Risk-Outlook.aspxN

NN

N

◽Three Asian Tigers caught in a (Chinese) Typhoon >August 2016◽The Olympics: A false (economic) start for Brazil >July 2016◽Worldwide DSO: Paying the penalty for low growth >July 2016◽Brexit: What does it mean for Europe and the world? >May 2016◽Brazil did not need more drama right now >May 2016◽Insolvencies are back: Keep an eye on the domino effect >April 2016◽Why is global growth a FLOP(s)? >April 2016◽Switzerland: Modest export restart in 2016 while survey signals further

growing export risks >April 2016◽Oil prices: Time for (nasty) second-round effects? >March 2016

◽Armenia◽Austria◽Bolivia◽Brazil ◽Cyprus◽Denmark ◽Ireland

◽Indonesia◽Jamaica ◽Kazakhstan ◽Malaysia ◽Mexico ◽Mongolia ◽The Netherlands

◽Pakistan ◽Philippines ◽Portugal ◽Slovenia ◽Trinidad and Tobago ◽Turkey

http://www.eulerhermes.com/economic-research/sector-riskshttp://www.eulerhermes.com/economic-research/sector-risks

WeeklyExport RiskOutlook

TheEconomicTalk

September 2016 update

NN

◽Europe’s Chemical Sector >September 2016◽US Oil >February 2016◽US Retail >February 2016◽US Household equipment >February 2016◽France agrifood >November 2015◽US agrifood >November 2015◽Germany agrifood >October 2015◽Construction in France >October 2015◽Construction in Germany >October 2015

February 2016

21

EconomicInsight





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>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

>LithuaniaPlease contact Finland

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

23


>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

>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

>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 BucurestiStr. Petru Maior Nr.6Sector 1011264 BucarestPhone: + 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 KoreaRm 1700, 17/F Jongro Tower Building, 6,Jongro 2-Ga, Jongro-GuSeoul 110-789Phone: + 82 2 733 8813

Euler Hermes Economic Outlookis 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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