PARIS – 28 NOVEMBER 2016 – Euler Hermes, the worldwide leader in trade credit insurance, analyzed the main 2016 economic trends and considers what could be the 2017 highlights. In 2016, global growth should reach its lowest level (2.4%) and in 2017 should be below 3% for the 7th consecutive year. Low prices put pressure on nominal growth, business turnover and trade – domestically and abroad. In 2016, insolvencies are expected to increase for the first time since the 2009 financial crisis, with big ticket bankruptcies on the rise. Global trade volumes for 2016 should have increased by +2.1% but the value of traded goods should contract by -2% vs 2015. In 2017, the global trade should grow by +3.1% only.
- 2016 has been a year of multiple hotspots: the stock market crash in China, the oil barrel below US$20, presidential impeachment in Brazil, the Brexit vote, an attempted coup in Turkey, the surprising U.S. election outcome, to name a few. The December Italian constitutional referendum could also deliver another electoral surprise.
- Exporters and the commodities sector are under pressure: The commodity price shock reshuffled the cards between exporters and importers, just as accommodative monetary policies changed the game between consumers and savers. Precautionary savings are a reason for concern: Investors continue their flight toward safe investments, and both companies and consumers are holding onto their money. This growing savings glut, whereby desired saving exceeds desired investment and financing does not flow to needed countries and sectors, remains a challenge and a drag on investment. US$7trn in cash remains glued to balance sheets, including US$2trn in the U.S. In the meantime, credit crunches mushroom in emerging markets.
- While many countries have had a hard time managing their policy mix with fast-depreciating currencies and ailing public finances, Europe has been a green island as the euro zone was strong enough to restore the its credit market.
- Elections and new administrations will bring new faces in many countries: France, Germany, the Netherlands, the U.S. and more. New fiscal stimulus measures to support growth, erratic monetary policies in the face of reflation in the U.S., and stronger industrial policies (structural reforms, innovation and financing support) could change the rules of the game for many companies. Passive countries could suffer from more capital flight and imported tremors.
- In 2017, global trade growth should be less than half its long-term average (below 4%). The main factors include demand shocks (ongoing Brazil and Russian crises), structural adjustments in demand (China’s rebalancing, energy autonomy in the U.S.), tighter U.S. monetary policy implying currency depreciations, rising import costs, and a growing trend to isolationism.
- The feeble return of private investment seen in 2016, while forward visibility deteriorated, could eventually be jeopardized. Companies have to face short-term challenges (country risks) and long-term tests (disruption). Both debt and cash are piling up, highlighting the growing divide between existing wealth and the will to take risk for many private companies from China to the U.S.; some of them preferring the risk of dying rich when prices and interest rates rise again.