World Economy: Global insolvency outlook
EH’s latest research shows that the decline in global corporate insolvencies in 2010-2011 was short-lived. The number of insolvencies increased by +1% in 2012 but the overall figure encompasses two major and contrasting trends. Insolvencies fell
more than expected in the Americas (-15%) and Asia (-5%) but there was a sharper-than-expected increase in Europe, with bankruptcies up in each of the three major sectors (+3% in industry, +9% in construction and +7% in services). The deterioration in Europe was particularly evident in the eurozone (+16%), although Germany (-6%) was a notable exception. EH expects the upturn in insolvencies to gather pace in 2013 (+8%), in line with the downward revision in our macro-economic outlook, particularly for Europe, and EH’s initial forecast for 2014 is for the number of insolvencies to increase further, by +2%.
US: Latest indicators
Manufacturing data for April and May were very weak, but more forward looking indicators showed some optimism. In April’s Industrial Production report, manufacturing output fell -0.4% mo/mo, with decreases in most industries. Regional Federal Reserve reports on manufacturing from the Empire State (New York), Philadelphia and Chicago were all worse-than-expected and all showed contraction. However, the University of Michigan’s Consumer Sentiment survey increased by 7.3pps in May, to the highest level in almost six years—before the recession started—and the April Index of Leading Economic Indicators increased by a better-than-expected 0.6pps, driven by housing permits and a surging stock market, suggesting continued growth six to nine months ahead.
Russia: Growth slows, no monetary easing yet
Flash estimates from RosStat (official statistical office) show Q1 real GDP growth at +1.6% y/y, down from +2.1% in Q4 2012. Retail sales continued to rise, by +11.6% y/y in Q1 (+12.2% in Q4), indicating that robust private consumption was Q1’s key growth driver, while flat industrial production (after +1.7% in Q4) and a deterioration in external demand appear to have caused the slowdown. The value of merchandise exports contracted by -4.9% y/y in Q1 (-1.1% in Q4) while imports expanded by +3.4% (+6% in Q4). Despite political pressure for monetary policy easing to support growth, the central bank kept its key policy interest rate unchanged at 8.25% last week as headline inflation, at 7.2% y/y in April, remained markedly above the 5-6% target band for 2013. EH expects full-year 2013 growth of +3.2%, perhaps supported by looser fiscal and monetary policies in H2, if needed.
Germany: GDP growth and the labour market
Growth was relatively weak in Q1, according to the latest data release from the Federal Statistical Office, with GDP increasing by only +0.1% q/q after contraction of -0.7% in Q4 2012 (revised downwards from -0.6%). The weakness in Q1 was partly a result
of the impact on economic activity of adverse weather conditions in the period, which also dampened the typical spring revival in the labour market. The weak overall momentum was also confirmed in the latest Ifo Business Climate Index, which showed a further decline in April. Official data show 41.5 million people were employed in Q1, resulting in a comparatively low increase of +0.7% y/y. In March and April, the numbers of people registered as unemployed were down by -1.9% and -2.5% mo/mo, respectively, reaching 3.02 million by the end of the latter month.