Global economic recovery is already under pressure
Corporate insolvencies set to continue at high levels until 2011
The global economic recovery has probably reached its peak and growth is unlikely to accelerate further for the main countries driving recovery since it began in the spring of 2009. Growth will probably slow in 2011 in both emerging Asia and the United States whereas most industrialised countries are still not in a position to take over as growth drivers. Europe – particularly the euro zone – continues to lag behind, lastingly affected by the crisis. In its latest economic research report, leading global credit insurer Euler Hermes predicts that businesses will remain under pressure for several quarters, with corporate insolvencies continuing at high levels until 2011.
The global economic recovery appears to have reached its peak
The rebound in the global economy that started in the spring of 2009 after the record contraction experienced in the winter of 2008-2009, took firmer shape as the months went by, continuing into the first quarter of 2010 based on the available growth data and probably through to the second quarter judging by numerous indicators. “This generally positive picture overlies a reality that is significantly grimmer for two reasons,” warns Wilfried Verstraete, Chairman of the Euler Hermes Management Board. “Although the crisis has been largely overcome in emerging Asian countries, thanks to China’s momentum and the more substantial and more rapidly implemented stimulus packages than in the rest of the world, economic recovery is much weaker in the industrialised European countries. Also, growth in the countries driving the recovery - China and to a lesser extent the United States - is nearing its peak.”According to Euler Hermes, Asian countries will be unable to maintain the impressive growth levels recorded in the first quarter of 2010 out to 2011. The fading impact of stimulus packages and a gradual return to normal monetary policies are likely to contribute to a roughly 1 percentage point decline in the region’s GDP growth in 2011. The slower pace of growth (6.8% after 7.7% in 2010) is closely linked to the slowdown forecast for China, where GDP growth is expected to drop from 9.8% in 2010 to 8.5% in 2011.
At the same time, economic growth in the United States, the second driver of global recovery, is also expected to slow substantially, from 3.1% in 2010 to 2.6% in 2011. This slowing in particular reflects the reduced impact of economic support measures, which were concentrated at the end of 2009 and 2010, together with insufficient recovery in private sector employment.
All in all, Euler Hermes is forecasting global economic growth of 3.3% in 2010, slowing to 2.9% in 2011. The slowdown will be proportionally more pronounced for OECD countries (+2.1% in 2010 and +1.8% in 2011) than for the rest of the world (+5.6% in 2010 and +5.1% in 2011). World trade will move more or less in line with GDP trends, with volume growth declining from 11% in 2010 to 8% in 2011.
Europe, the only region to be lastingly affected by the crisis, with economic growth failing to reach 1% in the euro zone in both 2010 and 2011.
“Europe is lagging behind. A full year after the global economy began to recover, Europe’s growth is still far weaker than in other regions,” notes Karine Berger, Euler Hermes’ Head of Market Management - Marketing and Chief Economist, “with some countries, such as the United Kingdom, Spain and Greece, still recording year-on-year contractions in GDP. We have lowered our growth forecasts for all European countries and are now expecting growth of less than 1% in the euro zone in 2010 and 2011. Moreover, we foresee no return to pre-crisis quarterly GDP growth levels before 2012 in the euro zone.”Growth in euro zone domestic demand is expected to be virtually nil in 2010 and very weak in 2011. On annual average, household consumption will remain flat in 2010 (-0.2%) and grow very moderately in 2011 (0.5%), hampered in particular by unfavourable employment trends, wage moderation and the announced or expected austerity measures. Investment, which contracted significantly in 2009, will not lift again until 2011, when it is expected to grow by 1.2% after a fall of 3% in 2010, in both construction and productive investment.
The deterioration in the European outlook is linked mainly to the accelerated fiscal consolidation embarked on by several countries in May and June following the Greek sovereign debt crisis. “The consolidation plans announced are a major effort that could significantly slow European recovery, particularly in 2011,” says Karine Berger.
Businesses will remain under pressure, keeping corporate insolvencies at high levels until 2011
Euler Hermes’ Global Insolvency Index broke two records in 2009: first, in terms of the volume of insolvencies, which reached its highest level since the series began in 1995, and second, in terms of the annual increase in insolvencies, which broke records for the second year running at 29%. All told, in terms of insolvencies, 2009 was the worst year in more than a decade for some countries (United States, United Kingdom, France and Finland) and the worst in history for many other countries, namely Spain, the Netherlands, Belgium, Switzerland, Austria, Denmark, Ireland, Portugal and the Baltic countries.The ongoing global economic recovery, although set to slow in 2011, will be accompanied by a decline in corporate insolvencies worldwide. The decline, however, is likely to be moderate (down 3% in 2010 and 5% in 2011) compared with the record increases recorded in 2008 and 2009; above all, it is likely to be as uneven from country to country as the economic recovery has been. We expect corporate insolvencies to decline significantly in the Asia-Pacific region (down 9% in 2010) and, after rising substantially for two years, in the United States (-10%). In contrast, insolvencies will continue to rise in several European countries, particularly in southern Europe: Spain (+10%), Greece (+25%) and Portugal (+5%). Corporate insolvencies are unlikely to decline as an annual average before 2011 in Germany (+1%), France (+2%), Austria (+5%) and Ireland (+9%).
“Businesses, particularly in Europe, will remain under pressure until 2011,” said Michel Mollard, member of Euler Hermes’ Management Board. “While economic support measures are being phased out they will have to cope with a still gloomy outlook for business activity, even though they have already brought into play most of the possible adjustment levers, and numerous risks (commodities prices, financing conditions, etc.) still persist.”...
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