Amsterdam, 13 June 2016 – The Atradius outlook for global economic growth is ‘slower for longer’, with five primary downside risks that could drag down the economic and insolvency outlooks.
While the turbulence experienced in the first months of 2016 has subsided the underlying issues persist. Low commodity prices, tepid international trade growth, debt overhang, and ineffective monetary and fiscal policies are key contributors to the current global slowdown. The baseline growth forecast for 2016 is only 2.4%, 1.6% in the Eurozone, and this may deteriorate further through the year. After an overall picture of improving insolvency ratios in 2015, the insolvency forecasts for 2016 are less optimistic. In most countries the current default level will stabilise but at generally high levels.
In its biannual Economic Outlook Atradius identifies the five top global risks that would drive this:
| risk issue | Symptoms | Effects | Probability | Impact | |
|---|---|---|---|---|---|
| 1 | China's hard landing | GDP growth <5%. Credit constraints, significant capital outflow, devaluations. | Financial market volatility. Capital outflows from specific EMEs | low | high |
| 2 | Misguided Fed monetary policy | Financial market turbulence, reversal of capital flows from EMEs | Financing for firms in EMEs harder to obtain | low | high |
| 3 | Eurozone growth erosion | Ineffective ECB policy. (Very) low inflation. Low bank lending. Possible Brexit | Stagnation across the eurozone | moderate | moderate |
| 4 | Rapid rise of oil price | Rapid rise of the oil price significantly above USD 50 per barrel Brent | Windfall for exporters; higher costs for importers. Net negative impact | moderate | moderate |
| 5 | Deleveraging taking off | Corporate and governments reduce leverage | Lower spending by governments and firms, pushing demand lower | moderate | moderate |
- A hard landing in China, defined by GDP growth below 5% this year, would have a strong impact worldwide, reinforcing the negative effects already seen on global trade, commodity prices and financial turbulence.
- US monetary policy has a similar global impact. A steady, well-communicated tightening schedule is expected. Still, a poorly communicated, or even a well communicated but badly received course of action, is a clear threat. The accompanying financial turbulence would pose a large drag on global growth, particularly in emerging markets.
- Persistently slower growth in the eurozone, despite aggressive ECB monetary stimulus, could lead to longer term stagnation and elevate political uncertainty, already heightened due to the Brexit referendum.
- A rapid rise in the oil price would increase costs for oil importers, removing a key benefit for growth in many advanced markets such as the eurozone.
- Deleveraging taking off would also hold back growth in advanced markets, suppressing demand.
These last three risks would have a moderately negative impact on EU countries, with most becoming more acute in the periphery countries.
Global financial market volatility would especially hurt emerging market economies, whose economic outlook is already under pressure. More restrictive access to finance at a higher cost would further drive up the already high insolvencies that we now predict in key markets like China and Brazil.
The financial turbulence seen earlier this year provided us with a small taste of what could come later in 2016 should China land hard or if the Fed monetary policy is not well communicated or badly received. The economic outlook for advanced markets in Europe is mediocre with risks to the downside as well. Should these risks materialise, the impacts on insolvencies would be felt most strongly in countries like Italy, Greece and Portugal, where levels are still high.
About Atradius
Atradius provides trade credit insurance, surety and collections services worldwide through a strategic presence in 50 countries. Atradius has access to credit information on 200 million companies worldwide. Its credit insurance, bonding and collections products help protect companies throughout the world from payment risks associated with selling products and services on trade credit. Atradius forms part of Grupo Catalana Occidente (GCO.MC), one of the leading insurers in Spain and worldwide in credit insurance.