A DUN & BRADSTREET SPECIAL BRIEFING 2019 Global Economic ... · A DUN & BRADSTREET SPECIAL...

A DUN & BRADSTREET SPECIAL BRIEFING

2019 Global Economic OutlookGlobal Trade in Times of Growing Populism

April 2019 - NPECA

The Country Insight Team

A comparative, cross-border assessment of country risk and

opportunity for 132 countries globally

D&BCOUNTRY

RISK

POLITICALENVIRONMENT

CREDITENVIRONMENT

MARKETENVIRONMENT

• Scores & Forecasting• Reporting, Commentary &

Recommendations• Integration with D&B company

intelligence

SUPPLYENVIRONMENT

1H 2019 GEO Webinar | Follow us @DnBUS @DnBUKTeam

Presenter

Presentation Notes

Myself and the team of economists analyse and score cross-border data across a number of disciplines. The political, commercial and economic environment, paired with company level data available at Dun & Bradstreet – gives customers a complete picture of risk.

AgendaThe Global View: Rising Populism and the Future of Free TradeNorth America

Latin America

Western Europe

Eastern Europe and Central Asia

Asia-Pacific

Middle East & North Africa

Q&A

4

2018: A Good Year From a Country Risk Perspective

Country Risk Rating changes 2018: 25 Upgrades: 18 Biggest improvement: Argentina (from DB6a to DB5a) Downgrades: 7 Includes Germany (from DB1c to DB1d) Worst performer: Iran (from DB5b to DB6b)


Growth Patterns Will Shift in 2019…Real GDP Growth (%)

2016 2017 2018e 2019f 2020f 2021f 2022f 2023fWORLD 2.4 3.1 2.9 2.9 2.9 3.0 3.1 3.2

Advanced economies 1.7 2.4 2.3 2.0 1.9 1.9 2.0 2.1

US 1.6 2.2 2.9 2.5 1.9 1.8 2.1 2.3

Euroland 1.9 2.4 1.9 1.7 1.8 1.8 1.9 2.0

Japan 0.6 1.9 0.8 1.2 1.0 1.4 1.0 1.0

UK 1.8 1.8 1.4 1.6 1.6 1.7 1.8 1.8

Emerging economies 3.6 4.2 4.1 4.4 4.6 4.9 4.8 4.8

Brazil -3.5 1.0 1.2 2.3 2.4 2.5 2.4 2.3

Russia -0.2 1.5 1.7 1.5 1.6 1.6 1.7 1.7

India 7.1 6.7 7.5 7.7 8.0 8.1 7.3 7.0

China 6.7 6.9 6.6 6.0 5.8 6.2 5.9 6.0


Source: Dun & Bradstreet

… and Risk Levels Have Been Rising Constantly


The Dun & Bradstreet Global Risk Matrix ranks the biggest threats to business based on each risk scenario’s potential impact on companies, assigning a score to each risk. The scores from the top ten risks are used to calculate an overall Global Business Impact score. Our latest Global Business Impact score highlights highlights an improving risk outlook for cross-border businesses.

Source: Dun & Bradstreet

Global Business Impact Score

RANK REGION RISKLIKELIHOOD OF EVENT (%)

GLOBAL IMPACT

(1-5)

GBI SCORE (1-100)

1 Pan-Regional

Negotiations fail to stop a US-China trade war, which spirals, with negative secondary effects offsetting new opportunities and cooling global trade growth.

70 3 42

2 Pan-Regional

Rapidly growing cyber-dependence and connectivity lead to increasingly frequent and more damaging cyber incidents, with global ramifications.

90 2 36

3 Latin America

Argentinian peso collapses and drives up fears of sovereign debt default, which triggers a massive global bond sell-off.

45 3 27

4 Asia-Pacific

In China, US tariffs hit business profits. Contagion from bad corporate/municipal debts then triggers a substantial slowdown, requiring serial bank rescues.

45 3 27

5 Pan-Regional

Jetstream instability continues to create persistent, anomalous weather patterns across the Northern Hemisphere, increasing costs to the public and businesses.

65 2 26

226

265

283

272

250

254 260

231 230235

243

281

225 222

239

228219

246265

270

150

175

200

225

250

275

300

325

350

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2018

Quarterly GBI score

Average GBI Score (248.5)

The Rise of Populism

8

Acceleration of Populist Election Successes


9

The Rise of Populism - Europe


Source: Financial Times

Presenter

Presentation Notes

The number of people in Europe that lived under a populist government increased from 12.5 million in 1998 to more than 170 million in 2018.

10



Source: The Guardian

Presenter

Presentation Notes

14 of the EU-28 governments are currently minority governments as old political systems have disappeared (ESP, GER, FRA, ITA), mainly because of the decline of the Social Democrats

11



Source: Politico

Presenter

Presentation Notes


12

The Rise of Populism - US


Presenter

Presentation Notes


13

The Business Threats of Populism


Closed borders impact on trade and migration Rising wages and inflation Country risk is becoming more important Increased volatility Populism will not be solved by demographics

14

Trade: Still Global?

15

Global Trade: The Headlines

Donald Trump and ‘America First’ Trade wars ‘No deal’ Brexit Break up of trade groups Sanctions


16

What the Global Financial Institutions Are Saying:IMF: An escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook.*

World Bank: The outlook for the global economy in 2019 has darkened. International trade and investment have softened. Trade tensions remain elevated. **

UNCTAD: Economic prospects threatened by weak support for multilateralism, tight financial conditions and trade tensions. ***

WTO: This proliferation of trade restrictive measures and the uncertainty created by such actions could place economic recovery in jeopardy. ***** IMF https://blogs.imf.org/2019/01/21/a-weakening-global-expansion-amid-growing-risks/ 21 January 2019** World Bank http://www.worldbank.org/en/news/immersive-story/2019/01/08/storm-clouds-are-brewing-for-the-global-economy 8 January 2019*** UNCTAD https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1981 21 January 2019**** WTO https://www.wto.org/english/news_e/news18_e/trdev_11dec18_e.htm 11 December 2018


https://blogs.imf.org/2019/01/21/a-weakening-global-expansion-amid-growing-risks/

http://www.worldbank.org/en/news/immersive-story/2019/01/08/storm-clouds-are-brewing-for-the-global-economy

https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1981

https://www.wto.org/english/news_e/news18_e/trdev_11dec18_e.htm

17

The Good News

Regional and cross-regional trade agreements WTO goods and service agreements Bilateral agreements Cross-border infrastructure projects


North America: Divergent Paths to Growth

19

STICKING POINTS

US-China Trade Dependence Deepened\Loosened Among Specific Goods

-20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

Footwear, gaiters and the like, parts thereof

All Commodities

Miscellaneous manufactured articles

Articles of apparel, accessories, knit or crochet

Electrical, electronic equipment

Source: UN Comtrade, Dun & Bradstreet

US Goods Imports from China Change in Total % Share (2001 VS 2017)

-20.0% -10.0% 0.0% 10.0% 20.0% 30.0%

Fertilizers

Iron and steel

All Commodities

Vehicles other than railway, tramway

Oil seed, oleagic fruits, grain, seed, fruit, etc,nes

US Goods Exports into China Change in Total % Share (2001 VS 2017)

+29.3%

+24.0%

+20.0%

+12.9%

-8.3%

+33.7%

+9.5%

+5.8%

-2.5%

-16.0%


20

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Source: Bureau of Economic Analysis, OECD, Dun & Bradstreet

US: Real Private Nonresidential Fixed Investment (SAAR, Chn.2012$) (Change - Year to Year)

US: Real Private Nonresidential Fixed Investment {Avg. Since June 2009} (Change - Year to Year)


Tax Reform has Made North America More Competitive

Combined Corporate Income Tax Rate 2015-2017: 38.9% 2018: 25.8%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Canada:GDP: Busines GFCF: Nonres Structures, Mach & Equip(SAAR,Chn.2012.C$) Change - Year to Year

Canada:GDP: Busines GFCF: Nonres Structures, Mach & Equip(SAAR,Chn.2012.C$) {Avg. Since June 2009} Change - Year to Year

Marginal Effective Tax Rate 2015-2017: 17.0% 13.8%

21

Latin America: Subdued expansion

22

Highly vulnerable to new trade shocks


80

85

90

95

100

105

110

115

120 Copper Price Index

US applies tariffs on China

Sources: World Bank, Bloomberg, D&B

-2

-1

0

1

2

3

4

2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f

Real GDP, %

Latin America & Caribbean World

80859095

100105110

US Soybean cash price index

US applies tariffs on China

23

Trade and Investment with China deepens


0

20

40

60

80

100

120

140

Argentina Brazil United States China

Global Soybean Market,mmt

Production Consumption Exports

Sources: World Bank, Bloomberg, D&B

0 10 20 30 40 50 60

Copper

Grains

Edible oils

China demand, % global

1997

2017

24

Near-term Risks


• Growth moderates further

• Commodity market volatility – trade and investment impacts

• Debt sustainability concerns

• Brazil and Mexico policy uncertainty

• Argentina election-related uncertainty

• Venezuela crisis hard-to-call

• Structural reforms stymied

• Wide infrastructure gap persists

25

Recommendations

• Closely follow US-China trade talks

• Tighten payment terms to mitigate credit/cross-border payment risks, as needed

• Hedge against currency exposure given recent volatility

• Follow developments in trade talks e.g. EU-Mercosur and Mercosur-PacificAlliance

• Ensure compliance with increasingly robust anti-corruption laws to avoid heavypenalties and minimize reputational risk.

• Expect ongoing challenges with bureaucracy, inadequate infrastructure andcorruption.


Western Europe: Conflicting Messages

27

Labor Markets are Improving, but Growth is Slowing


• Eurozone unemployment is on the lowest reading since October 2008

• However, forward looking indicators are deteriorating

0

0.5

1

1.5

2

2.5

3

0

2

4

6

8

10

12

2016 2017 2018e 2019f 2020f 2021f 2022f 2023f

Real GDP Growth (right axis) Unemployment Rate (left axis)

28

The Outlook in Western Europe is Deteriorating


D&B had assigned a ‘deteriorating’ outlook eight months ago

Eurozone Composite PMI is on 66-month low

Consumer confidence has been deteriorating since July 2018

Political risk remains an issue

• Germany downgraded in late 2018• Rising tensions between Western and Central Europe• Brexit

29

Proprietary Payment Data Shows Significant Differences


0

5

10

15

20

25

30

Netherlands Germany Belgium Spain France EuropeanAverage

UK Italy Portugal

Average Payment Delays in Days, Q3 2018

Eastern Europe and Central Asia:Uncertainty or Instability?

31

Regional Risks Tilted to the Downside


Interdependencies of regional economies on Russia.

Exchange rate volatility: Sanctions and inflation continue

to hurt.

Monetary tightening: How prepared are we?

Russia-Ukraine conflicts threat regional stability.

Debt sustainability: Mixed across the region.

Fragilities and institutional weaknesses: Bailouts?

Structural weaknesses persist as growth falls below potential.

Growth subdued at 2.5% (2018f) vs 3.9% (2017).

Structural reforms required to improve policy, meanwhile tensions heighten risks of new sanctions.

32

Regional Growth Trails Global Expansion


0

1

2

3

4

2016 2017 2018(f) 2019(f) 2020(f) 2021(f) 2022(f) 2023(f)

Real GDP growth (%)

Eeastern Europe & Central Asia World

0.0

3.0

6.0

9.0

12.0

15.0

18.0

2016 2017 2018(f) 2019(f) 2020(f) 2021(f) 2022(f) 2023(f)

Average annual inflation (%)

Russia Turkey Ukraine

Kazakhstan World

Unprecedented inflation in Turkey

Structural headwinds weakens regional growth

Inflationary Pressures Bring Long-Term Challenges

33

Risks Remain High in the Region’s Largest Economies


Asia-Pacific: On the Cusp

Dongguan: 13%

Qingdao: 18%

1H 2019 GEO Webinar | Follow us @DnBUS @DnBUKTeam | 35

China’s Export Hubs: Under Pressure from Tariff War

Shenzhen: 15%

Ningbo: 16%

Dalian: 6%


China’s Export Hubs: Under Pressure from Tariff War


China Downgraded from DB4b to DB4c in January

• Deteriorating country risk outlook maintained.• Q4: discretionary consumer spending, and industrial output of many goods falling.• Passenger vehicle sales fell 4% in 2018 and 15% in Q4.• Real GDP growth 6.4% y/y, lowest since 1990. • Corporate bond defaults, yields, domestic ratings (typically ‘AAA’) fail to reflect risks.• Fewer than 5% of business closures via bankruptcy.• Business cessations up in Shenzhen: anecdotal information.• Local governments possess huge off-balance sheet debt liabilities.• National debt close to 3 x GDP.• Real estate developers face USD55bn in maturing debts 2019.• External corporate debt USD400bn, underestimated (offshore issuance).• Yuan stabilized at CNY7:USD.• 7m migrant workers returned home: China Daily.

Asia-Pacific: Debt Service Ratios

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2014 2015 2016 2017

External debt service ratio (%)

China India Pakistan

Sri Lanka Thailand

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18

Debt service ratio (%)

China Hong Kong (S.A.R.)India JapanKorea (South) Thailand



Debt Crisis versus Debt Sustainability Challenges

IMF Training Course: “Debt is sustainable if the country, or its government, does not, in the future, need to default, or

renegotiate, or restructure its debt, or recur to implausibly large policy adjustments”

Debt is unsustainable where (1) debt restructuring is needed (2) a borrower accumulates debt at a rate faster than the

growth in its capacity to service debt, particularly in the long run (3) if borrowers accumulate debts knowing that a major

retrenchment will be needed to service these debts

40

Oil Prices:Volatility is the Norm

41

Oil Prices, 2013 to 2019

108.998.9

52.444.0

54.4

71.1 77.0

0

20

40

60

80

100

120

2013 2014 2015 2016 2017 2018 2019f

Annual Average Oil Price (USD/b)


42

Oil Prices


4045505560657075808590

Oil Price 2018-date (USD/b)

43

Drivers of Oil PricesUpward Pressure Downward Pressure

OPEC+ quotas US shale

Sanctions Slowing global growth

Trade disputes Geopolitics


44

The Middle East & North Africa: A Zone of Instability

45

The MENA Hydrocarbon Economy

InvestmentAid

Trade

People

Remittances

Non-oil economiesOil economies

46

What is Driving Risk in the MENA Region?

1) Oil dependency2) Government over-spending3) Weak regulatory environment4) Concerns over global growth5) Insecurity, including external meddling


47

Fiscal Breakeven Points

0

20

40

60

80

100

120

Algeria Bahrain Iran Iraq Kuwait Libya Oman Qatar SaudiArabia

UAE

Fiscal Breakeven Price (USD/b)

2018 Oil Price


48

What is Driving Risk in the MENA Region?

1) Oil dependency2) Government over-spending3) Weak regulatory environment4) Concerns over global growth5) Insecurity, including external meddling


49

Risk in MENA, Selected Countries

Rating Outlook Environment Outlooks

Credit Supply Market Political

Egypt DB6a ↗ → → ↗ ↘

Iran DB6b ↓ ↓ ↓ ↓ ↓

Israel DB3a ↘ → → → ↘

Morocco DB4a ↘ → → → ↘

Saudi Arabia DB3c ↘ → → ↘ ↘

UAE DB3b → → → ↘ ↘


50

Recommendations

• Monitor negotiations on the Iranian nuclear deal.

• Put deals with Iran on hold.

• Comply with sanctions imposed by your country.

• Take legal advice about the ramifications of US secondary sanctions.

• Consider reputational risk.

• Consider planning longer term in Syria.

• Take advantage of political risk insurance.

• Closely monitor oil price movements.


Q A


COUNTRY INSIGHT SERVICES

[email protected]

@DnBUS @DnBUKTeam

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