The credit insurance news from Euler hermes.

Saudi Arabia: Tepid growth to continue in 2017

Preliminary data indicate that the economy expanded in 2016, Non-oil growth was particularly weak in 2016 due to government spending cuts and payment arrears to domestic contractors and service providers. However, there are signals pointing to a gradual rebound at the end of the year. The PMI for the non-oil private sector rose to a four-month high of 55.5 in December, perhaps reflecting that the government has begun to reduce its payment arrears. And the oil sector has benefitted from rising prices. EH expects the non-oil sector to continue to recover moderately in 2017 while output in the oil sector will be curtailed by the OPEC-agreed production cuts, which Saudi Arabia is expected to comply with. Overall, we forecast GDP growth to remain tepid at +1.5% in 2017. Meanwhile, inflation has fallen to a more than 10-year low of in December on the back of dropping food prices, but it should soon rise again as base effects fade.

Poland: Slowdown in 2016. Stabilization in 2017?

Preliminary estimates show that real GDP growth decelerated markedly to in 2016 from in 2015, in line with our forecast. Demand-side details are only partly available as yet but indicate that growth was almost entirely driven by domestic uses while net exports made only a tiny positive contributionPrivate consumption grew , up from in 2015. However, fixed investment dropped byin 2016, after it had increased by +6.1% in 2015. But a strong rise in inventories reduced the decline in overall investment to
in 2016. Data for Q4 are not provided as yet, but the full-year figure suggests that Q4 growth was similar to the posted in Q3. Euler Hermes expects a stabilization in 2017 and forecasts full-year growth of as domestic consumption should remain robust while investment activity should gradually recover thanks to an increased utilization of EU funds.

Chile: By the warmth of copper

The Central Bank lowered its key policy interest rate in January and markets anticipate a further cut of the same magnitude during the first semester in order to spur growth. Inflation continued to moderate after the short-lived rebound that took place in November. Consumer prices and in December, bringing down inflation below the 3% target. Copper prices increased by since September, after five years in negative territory driven by abating demand from China, and could catalyze Chilean production to gain momentum. Euler Hermes forecasts real GDP to increase In 2017, slightly better than the +1.7% estimate for 2016 but well below the average recorded in the previous decade. The sluggish economy has deteriorated confidence in the government and fuelled rising social discontent that could be decisive in the presidential and parliamentary elections that are scheduled to be held on 19 November.

Greece: All eyes on the IMF participation in the bailout

The Eurogroup meeting held last Thursday has :
(i) announced the formal adoption of the short-term debt relief measures that should help reduce Greek debt by 20pp by 2060 from186% of GDP in 2016;
(ii) concluded that there are enough positive drivers (positive growth in 2016, higher fiscal revenues) for a finalization of the second Troika review that will allow the disbursement of the next aid tranche. How- ever, an agreement on the policy reform package and the medium-term targets between the Europeans and the IMF is still needed. On 6 February, the IMF Board will conclude the Article IV consultation with Greece and should make a decision on its participation in the third bailout. This is important for the EU countries that continue to judge the IMF participation as “non-negotiable” and will allow the ECB to buy Greek bonds through its QE program. Markets have stressed the importance of the IMF being on board (10-year bond yields up by more than 80bp since the Eurogroup meeting) as a matter of restoring sufficient confidence for Greece’s return to the bond markets post 2018 when the bailout will end. The next Eurogroup meeting is on 20 February.

Eurozone: 2016 ended on a positive note

Preliminary estimates indicate that Q4 real GDP grew by +0.5% q/q, in line with expectations,. The pick-up is expected to have resulted from a boost to new export orders thanks to a weaker EUR, increasing prices which supported firms’ turnover, and a recovery in employment which supported private consumption. Confidence in the manufacturing sector registered its highest quarterly performance of the year which suggests that private investment continued to improve in Q4. Details by countries will be available on 14 February but advance estimates show accelerating growth in France and Belgium and steady growth in Austria and Spain In 2017, we expect Eurozone GDP growth to remain relatively stable at +1.6%. Despite high uncertainty due to the Brexit process and upcoming elections, the ECB safety net should help maintain resilience. We estimate that elections could cut up to -0.1pp from growth in France and Germany, -0.2pp in the Netherlands and -0.3pp in Italy.

Egypt: Rebalancing is ongoing

In Egypt, the short-term impact of key reform measures adopted last November is materializing. Among the bad news is that urban prices surged by 28.2%  in January, as a result of EGP(Egyptian Pound) depreciation (by about -50%) and subsidy cuts. We revise our inflation expectations from 20% to 26% on average in 2017. Another bad news, though to be expected, is the harsh contraction of the Manufacturing PMI for a fourth month in a row, to 43.3 points in January. We maintain our 0% GDP growth forecast for 2017 (which would be the worst performance since 1967). But there is also good news. The trade balance improved to -USD2.3bn in November (from -USD4.3bn a year ago) despite unfavourable price effects related to the currency depreciation.  

Italy: Still one of the slowest in the region

Real GDP growth slowed down slightly in Q4, to +0.2% in line with our forecast but below consensus expectations of +0.3%. The preliminary estimates indicate that domestic demand continued to drive growth while the contribution from external trade is expected to have remained negative for the second consecutive quarter. Annual 2016 GDP growth came in at +1%, after +0.6% in 2015. Although better, it is just slightly above half of the Eurozone average and, more importantly, it is the second slowest performance in the region after Greece. At the start of 2017, data shows relative stability. The Manufacturing PMI remained stable at 53.0 in January (53.2 in December). Good news came from the rise in orders from abroad and the strongest job creation in nine months as companies foresee to expand productive capacity. The Services PMI remained also stable at 52.4 in January (52.3 in December). Consumer confidence deteriorated slightly to 108.8 from 111.1 in December while the majority of households do not intend to increase spending on durable goods. Inflation increased further on the back of the base effects from higher oil prices, in January from  December.

Netherlands: Robust economy despite political uncertainty

Q4 real GDP increased by +0.5%, bringing full-year 2016 growth to +2.1%, in line with Euler Hermes’ expectations. Although investment in fixed assets declined by -1.6%, there seems to be no reason for concern as business confidence reached its highest level in almost nine years. The strong growth in 2016 was mainly driven by household consumption (+2.5%) and dynamic exports (+3.2%).
Long-term unemployment and consumer confidence are also improving. Despite the good news, uncertainty surrounds the upcoming general elections on 15 March, as the nationalist and populist Party for Freedom (PVV) led by Geert Wilders tops the volatile polls ahead of PM Rutte’s party. Still, GDP growth should remain close to but just below +2% in  2017.

Emerging Markets: Let’s get it started…with laggards

Manufacturing in Emerging Markets (EM) continued to improve somewhat in January. According to our proprietary EM aggregate Manufacturing PMI, industrial output accelerated for a fifth month in a row. In January, the index traded at 50.6 points (not far from its two-year high of 50.9 registered last November). The acceleration was particularly strong in some exporting nations, especially in Eastern Europe and in some places in Asia (best PMI since November 2014 in Singapore, at 51.0, and a high level of 55.6 in Taiwan). In Russia, the recovery is gaining traction, reflected in a PMI of 54.7 (best PMI since March 2011). The laggards are the most unbalanced key EMs, with an average PMI of 47.0 points. Among them, two economies are in a rebalancing mode which weighs on growth (Brazil and South Africa). Countries where imbalances have deteriorated (Mexico and Turkey) are the most prone to disruptions after potential external shocks (such as, for example, a more protectionist mood in the U.S. or a more hawkish Fed).

Japan: Shifting Gears

Real GDP growth slowed to +0.2% in Q4 2016 (from +0.3% in Q3) according to preliminary estimates, taking the full-year 2016 increase to +1%, with balanced contributions of both domestic and external demand While in the beginning of the year growth was mainly determined by private consumption, a recovery in exports, which in turn supported a rise in investment, became the driving force in H2. A weaker JPY and a gradual increase in global demand were the main reasons behind this “shifting of gears”. Looking ahead, advanced indicators such as the manufacturing PMI point to stronger growth in the short term. Supportive macroeconomic policies, the weaker JPY and a continued moderate rise in global demand should boost both trade and investment while accelerating inflation might hamper private consumption. Against this backdrop, Euler Hermes expects GDP growth to edge up to +1.1% in 2017.