Mise en page 1 · Overview page 4 Editorial page 3 Annex1&2 CountryRiskLevels andInsolvency...

no. 1195-1196May-June 2013

Macroeconomic, Risk and Insolvency Outlook

Theworld economyat a crossroads

www.eulerhermes.com | no. 1195-1196 |May-June 2013

Euler Hermes Economic Research Department

EconomicOutlook

2

Economic Outlook no. 1195-1196 | May-June 2013 | Macroeconomic, Risk and Insolvency OutlookEuler Hermes

Countries analysispage 12

>EH AmericasUnited States>Muddlingmix page 12Canada>Buffeted by global headwinds page 14Brazil>Crosswinds! page 15

>EH Northern EuropeUnited Kingdom>Disrupted recovery page 16Belgium>Zero-point page 18Netherlands>High tide page 19Sweden> Balanced page 20Russia>Disappointing growth page 21

>EH FranceFrance>Facing the inconvenient truth page 22

>EH DACH*

Germany>Caught in the vortex page 24Switzerland>Strong, but uneven page 26Austria>Taking a break fromgrowth page 27

>EH Mediterranean and AfricaItaly>Romewas not built in one day page 28Spain>Glass half full half empty page 30Greece>Nomagic bullet page 32Portugal>Saudade page 33

>EH Asia-PacificJapan>All or nothing page 34China>Regroup, rebalance page 36India>No Indian summer page 37

EconomicOutlook no. 1195-1996 |May-June 2013

Overviewpage 4

Editorialpage 3

Annex 1&2Country Risk Levelsand InsolvencyMethodologypage43

Subsidiariespage 46

EconomicOutlookSeriespage 45

ContentsMacroeconomic, Risk andInsolvencyOutlook |May-June 2013

no.1195-1996

The Economic Outlook is a monthly publication by the Economic Research Department of Euler Hermes. This publication is for the clients of Euler Hermes and available on

subscription for other businesses and organisations. Reproduction is authorised, so long asmention of source ismade. Contact the Economic Research Department • Publication

Director and Chief Economist: Ludovic Subran • Macroeconomic and Country Risk Research: David Atkinson (Head), Andrew Atkinson, Ana Boata, Romeo Grill, Mahamoud

Islam, Dan North, Manfred Stamer (Country Economists), Clémentine Cazalets, Laura Pagès (Research Assistants) • Sector and Insolvency Research: Maxime Lemerle (Head),

Bruno Goutard, Yann Lacroix, Marc Livinec, Didier Moizo (Sector Advisors), Virgine Reboul (Research Analyst), Morgane Gaudiau (Research Assistant) • Graphic Design: Claire

Mabille • Editor: Martine Benhadj • Support: Valérie Poulain • For further information, contact the Economic Research Department of Euler Hermes at 1, place des Saisons

92048 Paris La Défense Cedex – Tel.: +33 (0) 1 84 11 50 46 – e-mail: [email protected] > Euler Hermes is a limited company with a Directoire and Supervisory Board,

with a capital of 14,451,032.64 euros, RCS Paris B 388 236 853 • Photoengraving: Evreux Compo, Evreux, France – Permit May- June 2013– ISSN 1 162 – 2 881 • June 27, 2013

Latest changesin country riskspage38

Annex 3World tradepage44

* Germany - Ausria - Switzerland

Thetitle of this editorial is certainly a little ‘risqué’, especially if one isfamiliarwith the tune. But jokes aside, discussing the tsunami of

liquidity that has flooded themarkets – and its announced end – seemsunavoidable.Whynotmake a song of it? In fact, while the eurozonecontinues on itsmerryway anddangerously nears a crossroads, theUnited States also has a difficult bend to negotiate. In Europe, wear andtear is at the fore, andquestions are being asked as to how long theindustrial and social fabricwill hold up in the face of faltering publicpolicies and economic limbo. On the other side of the Atlantic,monetarypolicy is a key concern. The Fedwill taper but howmuchand, above all,when? The endof the deluge of dollars (the famousQuantitative easing -QE) that allowed theUS economy to pull out of its rutwill not take placewithout leaving itsmark on the credit channel and on the real economy.Central banks' full-scale economic experiment (in theUnited States, butalso in theUnited Kingdom, Japan and the eurozone) has reassured someandworried others. The doomsayers arewarning of either bubble orcredit crunch,while pragmatists remindus that therewasno othersolution in any case.What remains interesting is this choice, ladenwithconsequences that extendbeyondUSborders, of a less accommodatingmonetary policy by the Fed. Emergingmarkets remember only toopainfully the crisis in themid-1990s and, although these same countrieshave clearly changed, infrastructure, financialmarkets and the financingof the economyhave been generously fuelled by the (cheap) dollarliquidity during the past two years. Inflationary risks have soared, and in acountry like Brazil the unstable equilibrium that this represents, betweensocietal risk and theneed for an emerging industry, is unfortunately clear.Ultimately,many BRIC (Brazil, Russia, India, China) or CIVETS (Colombia,Indonesia, Vietnam, Egypt, Turkey, SouthAfrica) countries, andNext-11countries are once again facedwith the harsh reality of having to pressaheadwith numerous domestic reforms (Chinese growthmodel, thefinancing of the Turkish current account balance, orwagenegotiations inSouthAfrica to name just a few) all thewhile accepting high economicdependencywhich can (often) complicatematters. Is there any goodnews in all this? Justmaybe, it could help put the eurozone crisis intoperspective andmake it possible, at long last, to rebuild the economy–with less Realpolitik._Ludovic_Subran

3

Economic Outlook no. 1195-1196 | May-June 2013 | Macroeconomic, Risk and Insolvency Euler Hermes

Editorial

Let’s talk about Fed baby, let’s talk about Q&E

World business cycle indicators

-60-50-40-30-20-10

0102030405060

30

35

40

45

50

55

60

65

70Industrial confidence index (right axis)

Investor confidence index (left axis)

13121110090807060504

Sources: Markit, Sentix, Euler Hermes

4

Economic Outlook no. 1195-1196 | May-June 2013 | Macroeconomic, Risk and Insolvency

(ii) By contrast, the eurozone remainedin recession (-0.2% q/q) for the sixthquarter in a row. The ability of the corecountries to weather the crisis hasbeen eroded: Germany and Austria arein stagnation (+0.1% q/q and +0% q/qrespectively) while France (-0.2% q/q),Finland ( 0.1% q/q) and theNetherlands (-0.1% q/q) prevail inrecession.(iii) Meanwhile, emerging countriescontinue to drive global growth,although to a lesser degree due to aslowdown in growth among the emerg-ing BRIC countries: China (+7.7% y/y),India (+4.8% y/y), Russia (+1.6% y/y)and Brazil (+1.9% y/y).

The eurozone (-0.6%) will continue tobe a drag on global growth in 2013before recoveringmodestly in 2014(+0.8%). Prospects in the eurozoneremain dismal due to the ongoingbudgetary consolidation, the weakbusiness climate and tightened creditconditions (although to a lesser degreesince the start of 2013). Despite theeasing of budget targets in some euro-zone countries (France, Spain,Portugal, Greece and the Netherlands),the adjustment in public finances andthe weight of public debt stocks willdelay the recovery in activity. In addi-

tion, without any significant action onthe part of the ECB or heads of govern-ment to kick-start financing for com-panies, the investment cycle will strug-gle to pick up. In fact, credit tonon-financial companies (at the low-est level since February 2008) remainsstrongly hampered by a lack ofdemand but also by limited supplylinked to a still-high perception ofcredit risk and regulatory constraintsfor banks (Basel III). As for households,the deleveraging process is well under-way, but its protraction will curb anyvigor in their purchasing power,already affected by austerity measuresand rising unemployment. Adverseweather effects have also chimed in(floods in Germany and France in par-ticular, inclement weather in themonth of May), the negative effects ofwhich will be felt in Q2 2013. Thus, theeurozone is expected to post a secondyear of recession and a sharper con-traction than in 2012 (-0.6% comparedwith -0.5% in 2012) before modestlyand gradually picking up in 2014(+0.8%). None of the region'seconomies is likely to be spared:Germany is forecast to post a meager+0.3% in 2013 before +1.5% in 2014,while France looks set to fall in reces-sion (-0.3% before +0.4% in 2014).

>

Divergent economic performancesbetween andwithin regions persisted inearly 2013. The recovery in global activityis likely to be slower than expected (+2.4%in 2013 and+3.1% in 2014).

Global growth began the year on amixed note. Growth gaps (i) amongdeveloped countries have persisted,with a resilient US economy contrast-ing with a weakening eurozone, and(ii) between regions, with a satisfac-tory performance in the Asian regionthanks to a stronger-than-expectedrecovery in Japan. Global growthremained virtually stable in the firstquarter of 2013 (at +0.6% q/q com-pared with +0.5% q/q in Q4 2012). Thedivergence of economic performancesbetween and within regions contin-ued, notably within developed coun-tries:(i) The United States and Japan standout, the former having shownresilience thanks to dynamic privateconsumption (+0.6% q/q comparedwith +0.1% q/q in Q4 2012) despiteaccelerating budgetary consolidation,while the latter has enjoyed a moreclear-cut recovery (+1.0% q/q com-pared with +0.3% q/q in Q4 2012) onthe back of fiscal and monetary stimu-lus measures.

Global growth is expected to slow to +2.4% in 2013 before picking up slightly in 2014 (+3.1%). It will be characterized by: (1) a decouplingbetween regions, with moderate growth in the United States contrasting with a eurozone in a deeper recession, (2) an inversion of growth

trends within regions (upturn in Japan, slowdown in China), and (3) an overall disconnection between financial performances and theweakness of the real economy. Against this backdrop, the risk-return ratio remains negative on the whole because of an intensification ofpolitical and social risk and macroeconomic and financial prospects still marred by uncertainty. In the short term, political and economicchoices will be crucial: the extent of integration in the eurozone, public policies in Japan and the United States, the growth model in China and,last, the improvement in the business environment in Brazil, Russia and India.

Overview

Theworld economy at a crossroads

5


World GDP growth 100 2.9 2.5 2.4 3.1Developed countries 62 1.6 1.3 1.1 1.9Emerging countries 38 5.1 4.5 4.4 4.9North America 24 1.9 2.2 1.8 2.7United States 22 1.8 2.2 1.8 2.7Canada 3 2.5 1.7 1.9 2.3Latin America 8 4.2 2.6 3.0 3.5Brazil 3 2.7 0.9 2.7 3.3Western Europe 23 1.5 -0.2 -0.2 1.0Sweden 1 3.8 1.1 1.3 2.2United Kingdom 3 1.0 0.2 0.8 1.4Eurozone 17 1.5 -0.5 -0.6 0.8Germany 5 3.1 0.9 0.3 1.5France 4 2.0 0.0 -0.3 0.4Greece 0 -7.1 -6.4 -4.3 -0.2Ireland 0 1.4 0.9 1.0 1.8Italy 3 0.5 -2.4 -1.8 0.3Netherlands 1 1.0 -1.3 -1.0 0.6Portugal 0 -1.6 -3.2 -2.6 0.2Spain 2 0.4 -1.4 -1.6 0.3Central and Eastern Europe 6 4.7 2.1 2.4 3.1Russia 3 4.3 3.4 3.2 3.8Turkey 1 8.8 2.2 4.0 4.0Poland 1 4.5 2.0 1.3 2.2Asia 29 4.8 4.9 4.8 5.1China 11 9.2 7.8 7.7 7.9Japan 8 -0.5 1.9 1.6 1.4India 3 6.5 5.0 6.0 7.0Oceania 2 2.3 3.3 2.4 2.8Australia 2 2.4 3.6 2.7 3.1Middle East 4 4.6 3.5 2.5 3.8Saudi Arabia 1 8.5 6.8 4.0 4.5United Arab Emirate 1 4.2 4.5 3.5 4.0Africa 2 1.1 5.8 4.5 4.8Marroco 0 5.0 2.7 4.5 4.5South Africa 1 3.5 2.5 2.5 3.5

GDP share* 2011 2012 2013 2014

World trade in goods and services

-15

-10

-5

0

5

10

15

1413121110090807060504030201009998

forecasts

4.76.3

13.1

0.2

3.3

5.4

9.7

6.9

8.6

6.3

1.9

-12.4

14.5

6.0

2.5

5.0

1.9

yearly change, in %

Sources: national statistics, IHSGlobal Insight, Euler Hermes forecasts

Australia

Canada

Sweden

Switzerland

United States

Norway

Germany

Austria

Belgiqum

France

Japan

United Kingdom

Netherlands

Eurozone

Denmark

Finland

Ireland

Spain

Portugal

Italy

Greece -23.9%

-8.7%

-8.6%

-7.0%

-5.9%

-4.4%

-4.2%

-3.3%

-3.0%

-2.6%

-1.2%

-0.8%

0.4%

1.0%

1.3%

2.9%

3.6%

5.3%

5.8%

6.4%

12.6%

GDPgrowth


Q1 2013 compared toQ1 2008

* change fromone period to the nextSources: FMI, IHSGlobal Insight, Euler Hermes forecasts

forecastsEconomic forecasts

Australia 2.7% 0.3% 2.4%Canada 1.9% 1.3% 0.6%United States 1.8% 1.7% 0.1%Japan 1.6% 1.6% 0.1%Switzerland 1.3% 1.1% 0.2%Sweden 1.3% 1.2% 0.1%Norway 1.2% 2.4% -1.2%Ireland 1.0% 0.1% 0.8%United Kingdom 0.8% 0.9% -0.2%Denmark 0.5% 1.1% -0.6%Austria 0.3% 0.1% 0.2%Germany 0.3% 0.4% -0.1%Netherlands -1.0% -2.7% 1.7%Finland 0.1% -1.1% 1.2%Belgium 0.0% -0.2% 0.3%France -0.3% -0.5% 0.1%Spain -1.6% -3.8% 2.1%Italy -1.8% -2.7% 0.9%Portugal -2.6% -5.1% 2.5%Greece -4.3% -7.6% 3.3%

Contribution to 2013GDPgrowth*

* annual averageSources: IHSGlobal Insight, Euler Hermes forecasts

GDPDomestic Net tradedemand contribution= +

6

Economic Outlook no. 1195-1196 | May-June 2013 | Macroeconomic, Risk and InsolvencyEuler Hermes

Growth in emerging Europe, linked tothe eurozone economic cycle (CentralEurope) and the reduction in commod-ity prices (Russia), is likely to remainweak (+2.4% in 2013 and +3.1% in2014).

The resilience of 2013 global growth(+2.4%) will come from healthy per-formances in the United States(+1.8%), China (+7.7%) and positivenews in Japan (+1.6%). 2014 will see amodest acceleration in global activity(+3.1%). In the United States, the out-look for employment and the realestate market continues to improve.However, the automatic spending cuts(USD85bn by October 2013) could havean impact on household consumptionin Q2/Q3 2013, although the use of sav-ings could help to cushion the effect oftax hikes. Economic growth isexpected to slow to +1.8% in 2013before picking up in 2014 (+2.7%) onthe back of improving economic fun-damentals: progress in private-sectordeleveraging and improving competi-tiveness in the manufacturing sector(labor cost at a post-1980 low). Thetwo regional leaders in Asia willunderpin global activity. In Japan,growth will accelerate to +1.6%, drivenby an extremely expansionary mone-tary policy. In 2014, the economy isforecast to slow to +1.4% under theeffect of a tightening of fiscal policy,Japan's public debt having reached all-time highs. In China, the rebalancingof the economy in favour of moredomestic than external growth driverswill continue. This transition will bereflected by a deceleration in the paceof growth to +7.7% in 2013 and +7.9%in 2014. Latin America will showresilience, with growth gradually pick-ing up (+3% in 2013 and +3.5% in2014). Meanwhile, Brazil, which is themain contributor to activity in theregion, remains hostage to stronginflationary pressures that preventany easing of monetary policy.

A fresh surge in social and financial risksPolitical risk is gainingmomentumparticularly in the Middle East. The

polarization into blocs (around theUnited States and Russia) concerningthe Syrian conflict foreshadows a pos-sible escalation of the geo(political)risk at the global level (spreading of thearmed conflict, rise in oil prices). Theelection of a new president in Iran, pre-sented as more moderate, provides aglimpse of hope for a new era of inter-national negotiations, although thenew president's inclinations remainuncertain. In Turkey, the escalation ofthe Taksim Square protests gives rise tofears of more widespread outbursts.The social risk remains high in south-ern Europe, with unemployment ratesthat continue to rise. The shutdown ofthe Greek public television networkhas fuelled tension between the gov-ernment and its partners in an alreadystrained environment. In this context,the risk overhanging growth remainshigh at the global level while the latestleading indicators are yet to point to anupturn in activity. In fact, the weaknessof demand in the eurozone continuesto weigh on the global economy, fur-ther weakening the other economiesdragged down in the wake of the ongo-ing European crisis (-0.1 pp of annualgrowth for every quarter of crisis).

In addition to these risks, financialuncertainties have also risen. The dis-connection between the real econ-omy and the financial sphere contin-ues despite increasinglyexpansionary monetary policies. Infact, while financial variablesimproved on the whole during the firstquarter in the main developed coun-tries, trends remain (1) highly volatile,(2) incongruous with macroeconomicsignals (weakening global demand).The central banks of the major devel-oped countries have reaffirmed theirwillingness to carry on with unconven-tional monetary policy, furtherincreasing already abundant globalliquidity (assets up by +13 pps of GDPbetween 2007 and 2012 for the maincentral banks). The Fed has commit-ted to continuing its asset purchasesand to leaving the Fed Funds rate at anall-time low until the job market

>

>

Unemployment rate*

Sources : IHS Global Insight, Euler Hermes forecasts* annual average

2012 2013f 2014f

Greece 24.3% 26.2% 26.0%Switzerland 2.8% 3.0% 3.0%Japan 4.3% 4.3% 4.4%Sweden 8.0% 8.1% 7.9%Portugal 15.9% 18.3% 18.9%Ireland 14.7% 14.3% 13.9%Norway 3.2% 3.5% 3.3%Canada 7.3% 7.0% 6.8%United States 8.1% 7.7% 7.1%France 10.2% 10.9% 11.0%Italy 10.7% 11.7% 12.7%Spain 24.9% 27.7% 28.3%Denmark 8.3% 8.2% 7.8%Belgium 7.6% 8.2% 8.2%Germany 6.5% 6.7% 6.6%Eurozone 11.5% 12.3% 13.0%Austria 4.4% 4.7% 4.6%Finland 7.7% 8.3% 8.1%Netherlands 6.4% 7.9% 8.1%Australia 5.2% 5.4% 5.0%United Kingdom 8.0% 7.9% 7.8%Brazil 5.5% 5.4% 5.3%Russia 5.1% 5.4% 5.2%India 8.4% 8.8% 8.6%

7


Industrial production

50

100

150

200

250

300Eurozone

Japan

United States

China

World

131211100908070605

Basis 2005=100

Source: CPB

Public debt

2014f shown

2013fAustralia

Norway

Switzerland

Sweden

Denmark

Finland

Netherlands

Austria

Germany

Canada

France

Spain

United Kingdom

Belgium

United Kingdom

Ireland

Portugal

Italy

Greece

Japan223

182

134

123

122

106

102

98

97

95

87

79

76

73

56

47

41

35

28

28


% of GDP


Exchange rates

60

70

80

90

100

110

120

130

ChinaUnited Kingdom

JapanUnited StatesEurozone

1312111009080706050403020100

real effective exchange rate, basis 100=Q12000


2014f shown

2013fJapan

UK

Spain

Ireland

Portugal

Greece

USA

France

Belgium

Netherlands

Italy

Canada

Denmark

Austria

Finland

Australia

Sweden

Switzerland

Germany

Norway13.0

0.3

0.3

-1.0

-1.1

-1.6

-1.9

-1.9

-2.5

-2.5

-2.7

-3.0

-3.6

-3.8

-3.8

-4.8

-5.2

-6.0

-6.9

-10.0

Fiscal balance%of GDP

-4-3-2-1012345678

2014f2013f

Chin

a

Germ

any

Indi

a

Turk

ey

Russ

ia

Braz

il

Aust

ria

Japa

n

Spai

n

Italy

Fran

ce

Unite

dKi

ngdo

m

Unite

dSt

ates

Current account balance

Sources: IHSGlobal Insight, Euler Hermes forecasts

% of GDP

25

30

35

40

45

50

55

60

65

China

United States

JapanEurozone

1312111009080706050403020100

Industrial confidence index

Sources:Markit, Bloomberg, Euler Hermes

Manufacturing PMI

8


(+23%). Governments' borrowing con-ditions, in particular in the eurozone,have continued to improve, despitethe Cypriot crisis and the politicalproblems in Italy.

The longer this disconnection lasts,the more it will fuel instability. Thissituation reflects (i) an ineffectivenessof monetary policy transmissionmechanisms, which are stimulatingmore demand for financial assets thanfor goods and services, (ii) uncertaintyoverhanging the global economic out-look, leading investors to seek assets"reputed" as the safest (priority givento reputation over fundamentals), and(iii) the speculative behavior of finan-cial institutions seeking the highestreturns in the short term. It could be“beneficial” if it is temporary and leadsto wealth effects being injected intothe economy through consumption, inparticular in countries with a highnumber of household shareholderslike in the United States, or businessinvestment (Japan). This is our corescenario. Should the reverse unfold,this disconnection would be very dam-aging, particularly in the eurozone andJapan. For the former, it would lead toan ongoing decline in spending byhouseholds and companies, whichthemselves are the cause of graduallyweakening inflation, or to a vicious cir-cle of mutually sustaining sluggishdemand and falling prices. The case ofJapan would be all the more problem-atic in that the country already suffersfrom a colossal public debt and stillbears the scars of ten years of deflationand weak growth. While the risk ofsuch a scenario seems to be kept atbay for the time being in the eurozone,it remains significant in the case ofJapan, in particular if this country isunable to come up with a credible planto shore up public finances in themedium term.

Political and economic choiceswill becrucialThe eurozone continues to face insti-tutional dilemmas in addition toimbalances specific to each country.

absorbs its imbalances. The ECB cut itskey policy rate in May (by 25bp to 0.5%)and expectations are for an even moreactive monetary policy from this sum-mer onwards in order to kick-startcredit to non-financial corporations.The BoJ is undoubtedly the subject ofmost attention in light of its new oper-ating framework, namely an inflationtarget now at 2% for the next two yearsand an objective of doubling themoney supply by 2014. With a view tocontaining capital inflows linked tothese unconventional policies, manycountries have chosen to ease theirmonetary policy. This has been thecase in other developed countries suchas Australia and New Zealand, whichenjoy much healthier prospects thanthe regions cited above, but also insome large emerging countries includ-ing Mexico and Turkey.In a normal growth cycle, an easing ofmonetary policy paves the way, via animprovement in borrowing condi-tions, for a pick-up in demand and anacceleration in inflation. Interest rateshave never been so low over the pastdecade and the global money supplyhas never been so high. Yet the eco-nomic news flow continues to disap-point: growth in activity remains weakconsidering the means that have beenput into action. In fact, emergingcountries, which will contribute twothirds of growth in 2013, have slowed,demand in Europe continues to con-tract and activity in the United Stateshas grown below expectations. Globalinflation continues to decelerate(+3.4% in Q1 2013 compared with+3.6% in Q4 2012) and the decline inbasic product prices, in particular thefall in the oil prices per barrel toaround USD100 in May, are all factorsthat illustrate the weakening of globaldemand. Paradoxically, financial indi-cators have recorded positive perform-ances in this relatively fragile environ-ment (delayed recovery, low inflation).First of all, stock market indices of themain developed economies haveimproved since the beginning of 2013(+3% in Italy and +1% in Spain) and therise has been spectacular in Japan

>Equity prices

Turk

ey

Indi

a

Russ

ia

Germ

any

Braz

il

Polan

d

Unite

dSt

ates

Chin

a

Fran

ce

14.224.6 24.7

38 43.7

69.781.8

106.8

197.4change since the beginning of QE in theUSA, nov. 2008

Source: IHSGlobal Insight

Private capital inflows in the emerging economies

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

14f13f12e11100908070605

millions USD

Source: IIF

Exchange rates growth

Japan

United Kingdom

Eurozone

Mexico

South Korea

China

Brazil

Canada 19.5%

10.2%

7.8%

6.1%

2%

11.6%

-0.3%

-4.4%

USDper LCU since the beginning of QE in theUSA, nov. 2008

Sources: IHSGlobal Insight

9

Sovereign interest rates (10 years)


Index of financialmarkets volatility (VIX)

0

20

40

60

80

100

13121110090807

Lehman Brothersbankruptcy

Greekcrisis

Bailout ofIrish banks

Italianbanks Greek debt

restructuring

Spanishbanking

crisis US Fiscalcliff

Italianpolitical crisis

andCyprus bailout

Sources: Bloomberg, Euler Hermes

Sources: Banque de France, Euler Hermes

0

1

2

3

4

5

6

7

8Japan

Spain

Italy

GermanyFrance

United Kingdom

United States

13121110090807

in %


Spain

Japan

Unite

dKin

gdomIta

ly

Fran

ce

Unite

dSta

tes

Germ

any

4352

6978

8994

101

Non-financial corporations debt%of GDP, Q4 2012

▶ The contraction in credit to non-financial corporations

(NFC) gathered pace inMay 2013 (-5.0% y/y), reducing

the stock of credit in the eurozone to its lowest level since

February 2008.

With the exception of theNetherlands, the fall in credit to

eurozoneNFC has affected all countries, although it has

beenmore pronounced and longer lasting in the southern

European countries. Credit to NFC has been declining for

the past three years in Spain (-19.9% y/y inMay) and

Ireland (-6.2% y/y), for the past two years (ormore) in

Portugal (-6.0% y/y) andGreece (-7.6% y/y), and for a little

more than one year in Italy (-4.6% y/y). Core eurozone

countries such as Germany (-0.9% y/y) and France

(-0.5% y/y) have also seen declines in the past fewmonths.

▶ The lack of anymomentum in business investment

rules out any lasting pick-up in eurozone growth.

This is all themoreworrying since the investment cycle is

primarily financed via bank credit. In fact, eurozone

companies raisemore than 90% of their financing through

banks (comparedwith 30% in theUnited States) at the

expense of financing through the bondmarkets for

example. It is therefore imperative that a policy to

stimulate credit is introduced in the eurozone, in addition

to an effort to ease fiscal policy. Establishing a public bank

(to support privatemarket capacities) such as the KfW in

Germany (and soon the BPI in France) to operate in

conjunctionwith the creditmarket would be useful, and

could even help those countries beset by a credit crunch

(along the lines of the KfW-ICOmodel betweenGermany

and Spain). But it is clearly support for the real economy,

such as the Funding for Lending Scheme in theUnited

Kingdom, that is lacking. The EIB has reiterated its intention

tomake available EUR 60 billion in soft loans to SMEs (from

its recently voted EUR 10 billions recapitalization). The

terms according towhich these loans are grantedwill be

crucial for the cost-efficiency of this new tool. o AB

▶ First, the rise in non-performing loans (nowat record

levels in Spain and Italy, respectively at 10% and 13%of

total loans) and theweak profitability of banks is curbing

the credit supply, in particular in light of the tightening of

regulatory capital requirements for banks.

Second, weakened demand (high unemployment, decline

in purchasing power) and the gloomy business climate are

weighing on companies' investment intentions and

therefore on credit demand. Last, despite the easing of

financial tensions, credit conditions remain highly

unfavorable in the eurozone (especially among the

southern European countries) unlike in theUnited States

or theUnited Kingdom. In fact, bank financing is 100 bps

more expensive (or +3.5% on average) for Spanish and

Italian NFC than for those in France or Germany. This is

mainly due to Europe's dysfunctionalmonetary policy (the

spread between bank credit rates for NCF in the eurozone

and the ECB's key policy rate doubled between 2007 and

2012).

Credit to companies in the eurozoneis at its lowest since early 2008.

Supply, demand, price: whatfactors are obstructing the creditchannel?

Reviving growth througha public-private partnershipstimulating credit to companies.

Beyondmonetarypolicy, Europeneeds a creditpolicy.

Credit to non-financial corporations


yoy, %

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Eurozone

France

Italy

GermanySpain

13121110090807060504

10


Inflation*

Sources: IHSGlobal Insight, Euler Hermes forecasts* annual average

2012 2013f 2014f

Greece 1.0% -0.6% -0.2%Switzerland -0.7% -0.3% 0.3%Japan 0.0% 0.1% 1.6%Sweden 0.9% 0.5% 1.7%Portugal 2.8% 0.4% 0.9%Ireland 1.9% 1.0% 1.2%Norway 0.8% 1.5% 1.8%Canada 1.4% 1.4% 1.8%United States 2.0% 1.4% 2.1%France 2.0% 1.2% 1.6%Italy 3.0% 1.3% 1.2%Spain 2.4% 1.4% 1.0%Denmark 2.4% 1.0% 1.8%Belgium 2.6% 1.2% 1.9%Germany 2.0% 1.5% 1.9%Eurozone 2.5% 1.6% 1.5%Austria 2.5% 1.8% 2.2%Finland 2.7% 2.3% 2.4%Netherlands 2.8% 2.7% 1.7%Australia 1.8% 2.5% 2.5%United Kingdom 2.7% 2.6% 2.2%Brazil 5.4% 6.3% 5.6%Russia 5.1% 6.3% 5.2%India 7.6% 7.3% 6.5%China 2.7% 2.5% 3.0%

new measures at the European level(mutualisation of debts within theESM/ERF) and growth. As mattersstand, the road to any real fiscal andpolitical integration in the eurozone(European Budget and Government)remains long, which does not bodewell for a vigorous recovery in activity.

The United States and Japan will haveto adopt a credible position in termsof public policies. The postponementof the increase in the debt ceiling inthe United States to September 2013means that uncertainty continues tolinger over USA’s public finances.August 2013 will mark two years sincethe government deferred the resolu-tion of this problem to a later date.While macroeconomic fundamentalshave improved, easing concerns aboutthe sustainability of the debt situation,failure to resolve the debt ceiling issue– a legal obstacle to new financing –would increase the sensitivity of theeconomy to any new financial shock.In Japan, public debt continues on itsupward path and the government'slatest policy guidelines (JPY 10 billionstimulus plan) suggest this trend willcontinue. While this stimulus willindeed bring growth in the short term,maintaining such a stance will bedamaging in the medium term. Ourscenario assumes a rise in financialpressures on the Japanese governmentfor it to reduce its deficit from 2014. Asa result, a hike in the VAT rate wouldlikely take place in the first half of2014.

In China, the change of economicmodel will not take place in the shortterm. The rebalancing of the Chineseeconomy remains the authorities'main priority. A resulting slowdown ingrowth (close to 8% per year asopposed to 10% during the lastdecade) has been accepted. A changeof economic drivers, from an export-led model to one driven by domesticdemand, is underway. This is beingfuelled by massive injections of liquid-ity and the implementation of infra-structure plans. However, this transi-

In the first half of the year, theresilience of confidence in the euro-zone was tested by several events.First, the Italian legislative elections,which initially led to no conclusiveoutcome, have eased concerns sur-rounding the political instability onthe edge of which the country was tee-tering. While fragile, the 'grand coali-tion' led by Enrico Letta has gesturedat pressing ahead with the reforms(although probably less ambitiousthan those of the Monti government)which are needed for the country toreturn to the growth track. Second, theCypriot bailout decided in late Marcheased fears of contagion effects in theother European countries given theabsence of a banking union. Althoughthe negative effects on the stability ofthe zone and on the other 'sensitive'countries have been contained, much-needed progress in terms of gover-nance in the eurozone will be crucialin the coming months. The EuropeanSummit at end-June is expected tocome up with more answers in termsof (i) financial integration (and thelink between governments and banks,the scope of the banking union – jointresolution fund and joint depositguarantee – as well as a timetable forimplementation), (ii) the extent ofbudgetary consolidation in the com-ing years given the weakness of theeconomic cycle, and (iii) coordinationof private sector credit policies.Although imbalances between euro-zone countries continue to moderatethrough the implementation of struc-tural measures, the adjustment of unitlabor costs, the ongoing budgetaryconsolidation and a reduction inreliance on external financing, therebalancing process between thecountries of the area is far from com-pleted. In this context, the continua-tion of reforms at the national andEuropean levels is crucial for animprovement in productivity and priceand cost competitiveness, but also foran improvement in the health of thefinancial system. Last, the sustainabilityof public debts will remain a majorrisk in the short term in the absence of

>

11


-3

-2

-1

0

1

2

3

4

5World GDP (left axis)

Global insolvency index (right axis, descending values)

141312111009080706050403020100

forecasts -20

-15

-10

-5

0

5

10

15

20

25

30

Sources: national statistics, Euler Hermes calculationand forecasts

Insolvency and world GDPAnnual change in%

tion will take time given the structuralrelationship linking investment andexport activity (around 45% of GDP) tovery weak growth in private consump-tion and its small share in GDP(around 35%).

In addition to economic challenges(combating inflation), the BRI coun-tries (Brazil, Russia and India) willhave to improve their business envi-

ronment in order to restore confi-dence. Among the major globaleconomies, the BRI countries remainlow in global business practice rank-ings. Ranked below the 100 best-per-forming countries in the DoingBusiness Index (DBI)-2013, theseeconomies suffer from a challengingregulatory framework (mainly legaldifficulties in starting a business) thatdiscourages private initiative, in par-

ticular for foreigners. In addition, gov-ernance indicators continue to beundermined by corruption and weakperformances in logistics (lack ofinfrastructure for trade). These indica-tors all take on significance in the cur-rent context in which investors areseeking sufficiently sheltered and sus-tainable growth._AB/MI

USA 22.5 26.4 40,075 -16% -7% -6%China 10.9 12.8 2,626 -14% 4% 3%Japan 8.8 10.3 12,124 -5% -3% 3%Germany 5.3 6.2 28,297 -6% 1% -2%France 4.1 4.8 60,958 2% 2% -1%Brazil 3.7 4.3 1,495 26% 20% 0%UK 3.6 4.2 29,940 -8% -7% -6%Italy 3.3 3.8 12,442 2% 7% 0%Russia 2.8 3.2 14,072 10% 2% -3%Canada 2.6 3.0 3,236 -11% -4% -2%Spain 2.2 2.6 7,799 32% 40% 15%Australia 2.2 2.6 10,632 1% 3% 2%Korea (South) 1.7 2.0 1,228 -10% 1% -2%Netherlands 1.2 1.5 8,616 21% 7% -1%Switzerland 0.9 1.1 4,513 -4% -2% -4%Sweden 0.8 0.9 7,471 7% 10% 3%Poland 0.8 0.9 941 29% 10% 2%Belgium 0.8 0.9 10,587 4% 11% 2%Norway 0.7 0.8 3,814 -12% -3% -6%Taiwan 0.7 0.8 260 2% 6% 4%Austria 0.6 0.7 6,041 3% 4% 0%South Africa 0.6 0.7 2,928 -17% -4% -4%Denmark 0.5 0.6 5,456 0% 3% -3%Greece 0.4 0.5 1,400 30% 10% 3%Finland 0.4 0.5 3,471 1% 3% -2%Singapore 0.4 0.5 151 34% 1% -3%Chile 0.4 0.4 129 -3% 1% -4%Hong Kong 0.4 0.4 312 -6% 3% -2%Portugal 0.4 0.4 6,727 42% 9% 1%Ireland 0.3 0.4 1,684 3% -3% -8%Czech Republic 0.3 0.4 3,764 46% 10% 10%Romania 0.3 0.3 29,769 31% -3% -14%New Zealand 0.2 0.3 2,345 -8% -2% -2Hungary 0.2 0.2 22,389 13% 4% -4%Slovakia 0.1 0.2 1,050 6% 5% 4%Lithuania 0.1 0.1 1,339 5% 5% -5%Luxembourg 0.1 0.1 1,053 8% 0% -5%Latvia 0.0 0.0 881 0% 6% -3%Estonia 0.0 0.0 506 -19% 1% -4%

Insolvencies statistics by country

* share of global Insolvency Index** GDP 2011weighting at current exchange ratesSources: national statistics, Euler Hermes forecasts

forecasts

% of world % of global 2012 forecastsGDP** insolvency index* total change 2013 2014

(QE) program this year have causedsignificant volatility in the bond mar-ket. But the Fed needs to see a labourmarket “improved substantially” toslow QE, and this seems unlikely untilthe end of the year at the earliest. In themeantime QE has successfully inflatedboth the housing market (prices+11% y/y) and stock market (+25% y/y),a strategy which risks inflationarybubbles._DN


12

Euler Hermes

Euler HermesAmericas

ment has been strong and expecta-tions are that it will continue to be soin 2013 and 2014, driven by low supply,low interest rates, and rising prices.Nonresidential investment is expectedto contribute somewhat less due torisk-aversion in the business sector.Insolvencies continue to surprise tothe downside and are estimated tokeep dropping -17% in 2013 and -8% in2014 due to recovering GDP growth,and risk-averse businesses still run-ning on very lean staffs.

Net exports are likely to offer littlecontribution to overall economicgrowth in 2013 and 2014. Export mar-kets will be faced with several head-winds in 2013 (+2.8%). Canada willcontinue along in slow growth mode,Europe will be in recession andChinese growth will be slowing as well.Import growth is also likely to be nomore than modest in 2013 along withthe rest of the economy, although 2014could see a pickup in activity. The tradedeficit is unlikely to show materialchange.

Monetary policy continues on a riskytrack. The Federal Reserve continues topledge to hold interest rates near 0%until unemployment reaches 6.5% andinflation remains below 2.5%, a periodthought to be as far out as 2015.However expectations that the Fed willstart slowing its Quantitative Easing

Consumer spending is expected tocontinue at sub-par growth through2014 (+2.6%). A weak labour market, asharp increase in real personal taxes of+10.6% y/y and the resulting weakgrowth of real disposable personalincome of only +1.0% y/y have constrai-ned spending, and these conditions areexpected to continue. However spen-ding has been boosted to a +2.1% y/ygrowth rate by consumer confidence(at its post-recession high), driven bystrength in the housing market whichlooks sustainable through 2013.

Recent fiscal developments haveeased imbalances. The Treasury hasreceived unexpectedly high taxreceipts due to increased income reali-sed before higher tax rates were imple-mented in January. The CongressionalBudget Office predicts that the budgetdeficit will fall to 4% of GDP in 2013from 7% of GDP in 2012. This adjust-ment is welcome, but unfortunately itlessens the pressure on the govern-ment to plan for entitlement reformand, since the two political partiesremain far apart, it will be the fourthconsecutive year without a budget.Indiscriminate automatic budget cutsare expected to be a minor drag on GDPin 2013.

Investment is expected to provide aboost to the economy (+5.8% in 2013and +7.9% in 2014). Residential invest-

United StatesMuddlingmix

Towatch…

>Improving or decaying labour market.>Market reaction to Fed could continue to raise bondyields.>Slumping manufacturing sector a drag on therecovery.>Risk to exports if global economy weakens morethan expected.>Possible debt ceiling battle in September.>Drag from automatic budget cuts._

OverviewThe US economy is expected to continue performing at a sub-par pace in 2013 and 2014, continuing the weakest recovery since the GreatDepression. GDP growth is expected to be a mere +1.8% in 2013 and +2.7% in 2014, well below the post WWII average of +3.3%. Theeconomy will continue to be dragged down by a weak labour market plagued with structural unemployment, and higher taxes resulting inmore slowly growing income and consumption. In addition, expectations of a less accommodative monetary policy pose a risk of risingbond yields. But these negatives will be offset by increasing consumer confidence fuelled by rising housing and stock markets, and animproved fiscal situation.

Country Risk Level

LOW

13


InsolvenciesCurrent account balanceand trading partners

Short-term advanced indicators

USDbn, exports (FOB), imports (CIF)12-monthscumulative figures to end of Dec 2011

Sources: IHSGlobal Insight, IMF

Country Exports Share of totalTotal 1,481 100%of which, eurozone 196 13.2%Canada 281 19.0%Mexico 198 13.3%China 104 7.0%Japan 66 4.5%UK 56 3.8%Country Imports Share of totalTotal 2,265 100%of which, eurozone 288 12.7%China 417 18.4%Canada 321 14.2%Mexico 265 11.7%Japan 132 5.8%Germany 100 4.4%

InsolvenciesAnnual data

Current account balancein % of GDP

-8

-7

-6

-5

-4

-3

-2

-1

0

1

14121008060402009896949290

forecasts


-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

09 10 11 12 13 14

forecasts

Internal demand excluding stocks

Net exports

StocksGDP


Trading partners

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0.0

0.5

1.0

1.5

2.0

Insolvency rate (in %, right axis)

Number of cases (left axis)

14121008060402009896949290

35,2

9037

,410

40,0

75

Sources: AdministrativeOffice of US Courts,Euler Hermes forecasts

Retail sales and confidence indicesRetail sales in yearly change (3-month average)and confidence index (2-month average)

Industrial output and confidence indicesIndustrial output inyearly change(3-monthaverage)and confidence index (2-month average)

Sources: national statistics, IHSGlobal Insight

GDP growth and contribution of the components,in percentage points (quaterly data)


-20

-15

-10

-5

0

5

10

15

30

35

40

45

50

55

60

65

13121110090807060504030201009998

Industrial confidence index (right axis)Industrial output (left axis in %)

-15

-10

-5

0

5

10

15

0

20

40

60

80

100

120

140

160

Household confidence index (right axis)Retail sales (left axis in %)

13121110090807060504030201009998

GDP and componentsChange over the period, unless otherwise indicated: *contribution toGDPgrowth**USDbn


Chapter 7 27,177 -18.9% 67.8%Chapter11 8,840 -9.1% 22.1%Chapter12 510 -19.7% 1.3%Chapter13 3,187 -10.8% 8.0%Other Chapters 361 6.2% 0.9%Total 40,075 -16.2% 100%

* Jan-Dec '11 to Jan-Dec '12Source: AdministrativeOffice of US Courts

Number change* share

BusinessbankruptciesbyChapter in2012

forecasts

Economic forecasts

GDP 100% 1.8 2.2 1.8 2.7Consumer Spending 71% 2.5 1.9 2.2 2.6Public Spending 18% -3.1 -1.7 -2.6 -0.9Investment 14% 6.6 8.7 5.8 7.9Construction 3% -1.4 12.1 12.8 12.8Equipement 11% 8.6 8.0 4.0 6.5

Stocks * 0% -0.2 0.0 -0.1 0.0Exports 14% 6.7 3.4 2.8 7.9Imports 16% 4.8 2.4 1.8 7.1Net exports * -3% 0.1 0.1 0.1 -0.1Current account ** -466 -496 -519 -492Current account (% of GDP) -3.1 -3.2 -3.2 -2.9Employment 0.6 1.8 1.0 1.6Unemployment rate 8.9 8.1 7.7 7.1Wages 2.0 1.5 2.1 2.2Inflation 3.3 2.0 1.4 2.1General gov. balance ** -1250 -1061 -727 -641General gov. balance (% of GDP) -8.3 -6.8 -4.5 -3.8Public debt (% of GDP) 101 105 107 106Nominal GDP ** 15,076 15,685 16,159 16,875

UNITED STATES share 2011 2012 2013 2014


14

Euler Hermes

Insolvencies by sector in 2012

Agriculture 113 1.8% 3.5%Manufacturing 308 -21.6% 9.5%Utilities 11 10.0% 0.3%Construction 607 -2.1% 18.8%Trade 611 -13.1% 18.9%Hotels & restaurants 440 -13.7% 13.6%Transport & comm. 266 -12.8% 8.2%Financial intermediation 59 -26.3% 1.8%Real estate 77 -26.0% 2.4%Business activities 394 -2.7% 12.2%Households services 350 -12.7% 10.8%Total 3,236 -11.1% 100%* Jan-Dec '11 to Jan-Dec '12Source: Office of the Superintendent of Bankruptcy


Personal consumption is expected togrow only +1.4% in 2013 and +2.1% in2014, well below the 30-year averageof +2.7%. Spending will be constrainedby a large consumer debt load, anincreasing savings rate and weakemployment growth. Anaemic dispos-able personal income and the slowestcredit growth in 17 years are alsodrags.

The Canadian government will con-tinue to restrain spending andman-age the budget deficit down to -3% ofGDP in 2013 and -2.5% in 2014. Overallpublic spending is anticipated toincrease a mere +0.9% in 2013 and+0.1% in 2014. The federal budget isexpected to go into surplus in 2014-15.

Investment is forecast to grow only+0.6% in 2013 and +2.4% in 2014.Residential construction is likely tocontinue to shrink as a result of a softlanding from an overheated housingmarket, while businesses continue tobe reluctant to invest in the face ofglobal uncertainty and weak demand.Insolvencies are expected to fall 5% in2013 and 3% in 2014.

Growth in the critical export sector isforecast to weaken to +2.6% in 2013and rebound to +5.7% in 2014. Export

markets are anaemic in China, Europeand the US especially with sequestercuts going forward. In addition, com-modity prices, upon which Canadianexports are heavily dependent, arelikely to continue to ease with the weakglobal economy. Offsetting thesenegatives however, the CAD could fallagainst the USD later in 2013 and 2014if the US Fed does decide to taper its QEprograms, making Canadian exportscheaper.

The new Governor of the Bank ofCanada, Stephen Polz, has indicatedno significant change from his prede-cessor’s conservativemonetarypolicieswhich have been in sharpcontrast to the money printing byother major central banks. Althoughthe bias is still officially towards tight-ening, its unwelcome effect of boostingthe CAD and hurting exports maycause Polz to downplay the bias goingforward._DN

CanadaBuffeted by global headwinds

Insolvenciesannual data

0

3,000

6,000

9,000

12,000

15,000

0.0

0.2

0.4

0.6

0.8

1.0

1.2

14121008060402009896949290

3,05

03,

110

3,23

6



Sources: Office of the Superintendant of Bankruptcy,Euler Hermes forecasts

700 carOverviewCanada’s economy is likely to grow only +1.9% in 2013 and +2.3% in 2014.Personal consumption expenditures will be constrained by anaemic income, weakemployment and high debt levels, while conservative government spending willbarely grow, lowering the deficit relative to GDP. Investment will be cautious dueto a cooling housing market and global uncertainty. The critical export sector isanticipated to suffer weakness along with its major trading partners, particularlywith impending US sequester cuts. Conservative monetary policy should continueunder the new Governor of the Bank of Canada.

Country Risk Level

LOW

changeover a period, unless otherwise indicated:*contribution toGDPgrowth **CADbn


forecasts

Economic forecasts

CANADA share 2011 2012 2013 2014GDP 100% 2.5 1.7 1.9 2.3Consumer Spending 56% 2.3 1.9 1.4 2.1Public Spending 21% 0.8 1.1 0.9 0.1Investment 24% 4.2 4.4 0.6 2.4Stocks * 2% -3.9 -1.5 -0.1 0.0Exports 30% 10.4 2.9 2.6 5.7Imports 33% -3.1 -0.2 0.6 3.7Net exports * -3% 4.0 0.9 0.6 0.5Current account ** -50 -62 -35 -26Current account (% of GDP) -2.8 -3.4 -1.9 -1.3Empoyment 1.5 1.2 1.4 1.5Unemployment rate 7.5 7.3 7.0 6.8Wages 2.5 2.6 2.2 2.7Inflation 2.9 1.4 1.4 1.8General gov. balance ** -71 -59 -56 -49General gov. Balance (% of GDP) -4.0 -3.2 -3.0 -2.5Public debt (% of GDP) 83 86 87 87Nominal GDP ** 1,760 1,820 1,878 1,953

15

Euler HermesEconomic Outlook no. 1195-1196 | May-June 2013 | Macroeconomic, Risk and Insolvency

Household consumption growth willmoderate slightly in 2013, but remainthe lead growth driver. Q1 2013 perso-nal consumption growth q/q wasalmost flat, though up +2.1% y/y. Retailsales volumes increased mo/mo inApril (+0.5%) and broader sales (inclu-ding vehicles) were up +1.9%. Althoughinterest rates are set to rise they willremain below recent highs andemployment will be supportive.

Industrial production was up +1.8%mo/mo in April, but Maymanufactu-ring PMIs, though in expansionary ter-ritory, weakened for the fourth conse-cutivemonth. At start Q2 2013,business confidence remains weak. InQ1 2013, however, fixed investmentrose by +4.6% q/q, after +1.3% in Q42012 and in contrast to the q/q fall inthe first three quarters of 2012.Business insolvencies in 2012 rose+26%, though from a low base and arelikely to rise by +20% in 2013, beforestabilizing in 2014.

Exports of goods and services falteredin themiddle quarters of 2012, reco-vered strongly in Q4 (+6.1% q/q), butfell back in Q1 2013 (-6.4% q/q). Globalheadwinds remain a constraint butabsent upward pressure on theexchange rate there should be modest

growth in 2013 overall, strengtheningin 2014. Import growth is also likely torecover in 2013-14 and the net exportcontribution to GDP growth will benegative in both years.

The policy interest rate (down from12.5% in Aug 2011 to 7.25% in Nov2012) was raised in April (25bps) andMay (50bps) to 8%, as inflationmovedabove the upper limit of the targetrange (4% +/-2%) in March (6.6%).April and May inflation edged lower(6.5% y/y) and with tighter monetarypolicy and less food price pressureshould be back within target by end-2013, though capital flows and theexchange rate are wild cards. Thegovernment has taken fiscal measuresto support growth, but higher interestrates limit fiscal flexibility and there isa need to maintain transparency andprudent overall macroeconomic tar-gets to prevent erosion of hard wonpolicy credibility._DA

BrazilCrosswinds!


1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

14121008060402009896949290

1,79

01,

495 1,79

0



Sources: Serasa, Euler Hermes forecasts

OverviewPolicymakers are faced with a softer-than-expected recovery at the same time asinflation has moved above target. The central bank in response has raised interestrates by 75bps in two moves, re-affirming prioritisation of inflation control. GDPgrowth in Q1 2013 was more sluggish than expected and while there is momentum,full year 2013 growth is now likely to be only +2.7% and +3.3% in 2014. Key downsiderisks are further falls in commodity prices and a reversal of global capital flows, butBrazil remains well placed systemically to withstand global economic strains.

Country Risk Level

LOW

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **BRL bn ***nominal publicsector borrowing requirement

Sources: IHSGlobal Insight, National data, Euler Hermesforecasts



Country Exports Share of totalTotal 256 100%of which, eurozone 45 17.7%China 44 17.3%USA 26 10.1%Argentina 23 8.9%Netherlands 14 5.3%Japan 9 3.7%Country Imports Share of totalTotal 249 100%of which, eurozone 42 16.9%USA 38 15.1%China 36 14.5%Argentina 19 7.5%Germany 17 6.7%Korea (South) 11 4.5%

Trading partners

forecasts

Economic forecasts

BRAZIL 2011 2012 2013 2014GDP 2.7 0.9 2.7 3.3Consumer Spending 4.1 3.1 2.7 3.3Public Spending 1.9 3.2 3.0 2.8Investment 4.7 -4.0 3.0 5.0Exports 4.5 0.5 1.0 3.0Imports 9.7 0.2 3.0 8.0Net exports * -0.8 0.0 -0.3 -0.8Current account -88 -105 -143 -140Current accout (% of GDP) -2.1 -2.4 -3.0 -2.7Inflation 6.5 5.4 6.3 5.6General gov. Balance** -108 -110 -144 -155General gov.balance (% of GDP) -2.6 -2.5 -3.0 -3.0Public debt( % of GDP) 54 59 61 62Nominal GDP ** 4,143 4,416 4,781 5,247


16

Euler Hermes

Euler HermesNorthern Europe

remain fragile in Q2 2013: the capacityutilisation rate is set to decline in Q2and industrial production slowed inApril 2013 (+0.1% mo/mo versus +0.7%mo/mo in March). Looking further out,signs are more positive. Confidence inindustry is looking up (ManufacturingPMI above 50). Borrowing conditionsare improving and this trend looks setto stay in view of the BoE’s strategy. Thebusiness environment is morefavourable, with a tax system encour-aging investment and public policiesfavouring key sectors. On the prospectside, (i) on the domestic front, thedeleveraging process is expected toslow in the medium term and pave theway for a recovery in consumption, and(ii) external demand is expected topick up thanks to a gradual strength-ening of European economies.Corporate insolvencies should bedown by -6% in 2014, after -7% in 2013.

Household consumption will showresilience. The improvement in the jobmarket and a slight upturn in realincomes have enabled householddemand to stay in positive territory:+0.5% q/q in Q1 2013 after +0.4% in Q42012. In the short term, households willadopt a defensive behaviour , in linewith a level of confidence that is strug-gling to pick up due to prospects thatremain very volatile and a slowdown injob creation due to cuts in the privatesector and a deceleration in the supply

Increasing support from themonetaryand fiscal authorities in order to boostgrowth. Austerity continues but at aless aggressive pace. The budgetarytargets have once again been pushedback: the deficit will only fall below the-3% threshold after 2017/18, comparedwith 2016/17 in the previous projec-tions. Of note, measures to stimulategrowth were announced in the 2013budget: an additional cut in the corpo-rate tax rate from April 2015; anincrease in spending on infrastructureof GBP 3 billion per year from 2015/16;GBP 1.6 billion in funding granted to 11strategic sectors, including the auto-motive, aerospace and constructionsectors; and support for the real estatesector. As for monetary policy, theauthorities are continuing theiraccommodating policies, (i) by keep-ing the key policy rate at 0.5% and theasset-purchase program at GBP 375billion, and (ii) by adjusting their sup-port program for SMEs through modifi-cations to the Funding for LendingScheme (one-year extension, broaden-ing of eligible entities and improvedlending conditions skewed in favor ofSMEs).

Investment will be the driving forcebehind future growth. Investmentposted a slight regrowth in Q1 2013,after 3 trimestral decreases in a row(-9% between Q1 and Q4 2012). Activityindicators suggest the economy will

United KingdomDisrupted recovery

Towatch…>The evolution of monetary policy.>The evolution of public finances.>The evolution of borrowing conditions.>Households’ savings behavior .>Demand in the eurozone._

Country Risk Level

LOW

OverviewAfter +0.2% in 2012, economic growth is expected to improve to +0.8% in 2013 and +1.4% in 2014. GDP rose slightly in Q1 2013(+0.3% q/q) after having declined in Q4 2012 (-0.2% q/q). Nevertheless, this performance remains very fragile in light of its components:weak recovery of investment (+0.7% from -5% in Q4 2012), second contraction of exports and stocks highly volatile. Growth is expected toremain weak in the short term, as the economy suffers from deteriorating demand in the eurozone and weaker-than-expected demand inthe United States on the external front, and from the ongoing household and government deleveraging process on the domestic front.Investment will drive the cycle, but will remain weak in the short term because of poor prospects. Nevertheless, improvements incompanies’ financing conditions and in the business environment should pave the way for a gradual pick-up, in turn driving growth in2014.

of jobs in the private sector. In 2014,household consumption is forecast torise moderately (+0.9%) on the back ofan upturn in employment and a recov-ery in real wages.

Exports continue to suffer fromweakdemand in the eurozone. Exportsdeclined again in Q1 2013 (-0.1% q/qafter -1.9% q/q in Q4 2012) under theeffect of the slowdown in globaldemand and, more particularly,demand in the eurozone. In the shortterm, export order books suggest theenvironment will remain downbeat.These trends are expected to turnaround in the medium term, thanks toa recovery in global demand and posi-tive fundamentals, namely improve-ments in productivity and competitive-ness._VR/MI

17






Country Exports Share of totalTotal 464 100%of which, eurozone 215 46.4%Germany 51 10.9%USA 46 9.9%Netherlands 37 7.9%France 34 7.4%Switzerland 33 7.1%Country Imports Share of totalTotal 640 100%of which, eurozone 268 41.9%Germany 80 12.6%China 52 8.2%Netherlands 45 7.1%USA 45 7.0%France 36 5.7%



-5

-4

-3

-2

-1

0

14121008060402009896949290

forecasts


-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

09 10 11 12 13

forecasts


Net exports

StocksGDP


Trading partners

Number* change** share

20,000

30,000

40,000

50,000

60,000

0.4

0.6

0.8

1.0

14121008060402009896949290

26,0

00

29,9

4027

,700



Sources: DTI, Euler Hermes forecasts






12

-10

-8

-6

-4

-2

0

2

4

6

8

-50

-40

-30

-20

-10

0

10

20

13121110090807060504030201009998


-2

-1

0

1

2

3

4

5

6

7

8

9

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

13121110090807060504030201009998


GDP and components

*cumulative12monthsasofQ32012** fromthprevious12monthsSource: DTI

Insolvenciesby sector in2012EnglandandWalesonly

Agriculture 250 -18.8% 0.8%Manufacturing 2,001 -14.1% 6.4%Electri., gas &water supply 129 4.9% 0.4%Construction 5,293 -12.6% 17.0%Trade 4,158 -4.5% 13.3%Hotels and restaurants 2,766 -3.5% 8.9%Transport & communic. 1,555 -12.6% 5.0%Financial intermediation 525 22.4% 1.7%Others business services 6,556 -8.3% 21.0%Households services 7,943 12.8% 25.5%Total 31,176 -3.9% 100%

Change over the period, unless otherwise indicated: *contribution toGDPgrowth **GDPbn


Economic forecasts

UNITED KINGDOM share 2011 2012 2013 2014forecasts

GDP 100% 1.1 0.2 0.8 1.4Consumer Spending 64% -0.4 1.1 1.2 0.9Public Spending 22% 0.0 2.8 1.0 0.2Investment 14% -2.0 0.9 -3.1 4.6Construction 9% 3.6 -5.7 -4.3 3.7Equipment 5% -10.7 12.7 -1.3 5.9

Stocks * 1% 0.4 -0.6 -0.2 0.0Exports 31% 4.5 0.9 0.2 4.0Imports 32% 0.3 2.8 -1.2 3.6Net exports * -1% 1.2 -0.6 0.4 0.1Current account ** -22 -59 -52 -30Current account (%of GDP) -1.5 -3.8 -3.2 -1.8Employment 0.5 1.2 0.9 1.1Unemployment rate 8.1 8.0 7.9 7.8Wages 2.3 2.7 0.6 3.0Inflation 4.4 2.7 2.6 2.2General gov. balance ** -120 -98 -113 -96General gov. balance (% of GDP) -7.8 -6.3 -7.0 -5.8Public debt (%of GDP) 85 90 94 98Nominal GDP ** 1,537 1,562 1,611 1,668

BelgiumZero-point


18

Euler Hermes

ployment rate at 8.2%) with no sign ofimprovement in 2014. A slight increasein the (precautionary) savings rate istherefore expected in 2013 and 2014.These factors, in addition to the ongo-ing austerity measures, will keep a lidon household spending in 2013 and2014 (+0.3% and +0.4%, respectively).

The government hasmaintained itstarget for a balanced budget in 2015.The fiscal deficit came in at -3.9% ofGDP in 2012 and the government hascommitted to reducing it by 1pp of GDPin 2013 followed by 0.6pp of GDP in2014. In addition, public debt is to bekept below 100% of GDP in 2013 asagreed during a budgetary controlmeeting in March. Additional austeritymeasures will probably be needed forthe official targets, which appear allthe more difficult in light of theunfavourable political calendar(general and regional elections are tobe held in 2014)._CC/MI

For the second year in a row, foreigntrade will act as a cushion. In 2013, for-eign trade will contribute positively togrowth thanks to a bigger decline inimports (-1.7%) than in exports (-1.3%).In 2014, exports are expected torecover on the back of an improvementin external prospects (gradual recoveryin the eurozone).

Investment is expected to fall again in2013 (-1.5%) before picking up gradu-ally in 2014 (+2.2%). In the short term,investment is likely to continue to becurbed by weak prospects, bothdomestically (listless job market andausterity measures) and externally(decline in order books), as well as by apersistent increase in insolvencies(+11% in 2013). In the long term, andespecially from H2 2013, the outlookfor external demand points to a mod-erate upturn.

Household consumption will remainfragile in 2013. The implementation ofreforms to improve competitiveness(the aim being to wipe out the laborcost gap with the average amongGermany, France and the Netherlandsby 2018) is expected to result in stag-nant real wages in 2013 and 2014.Moreover, the job market is likely tocontinue to deteriorate in 2013 (unem-


Agriculture, 84 5.0% 0.8%Industry 632 9.7% 6.0%Construction 1,802 6.4% 17.0%Trade 2,743 1.9% 25.9%Hotels & restaurants 2,062 3.8% 19.5%Business services 3,192 -0.2% 30.2%Others 72 ns 0.7%Total 10,587 3.6% 100%

* Jan-Dec '11 to Jan-Dec '12Source: INS/SPF



0

2,000

4,000

6,000

8,000

10,000

12,000

0.6

0.9

1.2

1.5

14121008060402009896949290

12,0

0011

,800

10,5

87



Source: INS, Euler Hermes forecasts

OverviewAfter a year of recession (-0.3%), Belgium is expected to stagnate in 2013 beforepicking up again in 2014 (+0.7%). Belgian growth has barely increased since Q42011. After four quarters of contraction, growth stabilized in Q1 2013. All GDPcomponents fell with the exception of consumption (+0.2% q/q). In particular,investment (-0.5% q/q) and exports (-0.7% q/q) entered their second quarter ofdecline. Prospects are tilted on the downside, while confidence indicators –especially for demand – point to a new stagnation in the short term. On the otherhand, better fundamentals in the eurozone (improvement in the financialenvironment and in the regulatory framework) point to a gradual recovery fromH2 2013 onwards.

Country Risk Level

MEDIUM

forecasts

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **EURbn


Economic forecasts

BELGIUM share 2011 2012 2013 2014GDP 100% 1.9 -0.3 0.0 0.7Consumer Spending 52% 0.2 -0.3 0.3 0.4Public Spending 26% 1.4 0.4 -0.2 0.3Investment 19% 4.0 -0.8 -1.5 2.2Stocks * 1% 0.7 -0.2 0.0 0.0Exports 84% 5.5 0.7 -1.3 1.7Imports 81% 5.7 0.5 -1.7 1.7Net exports * 2% -0.1 0.2 0.3 0.0Current account ** -4 -5 -1 1Current account (% of GDP) -1.1 -1.4 -0.3 0.2Employment 0.4 0.4 -0.1 0.5Unemployment rate 7.2 7.6 8.2 8.2Wages 2.7 2.8 2.1 1.9Inflation 3.4 2.6 1.2 1.9General gov. balance ** -14 -15 -11 -12General gov. balance (% of GDP) -3.9 -3.9 -2.9 -3.0Public debt (% of GDP) 98 101 101 102Nominal GDP ** 370 376 383 393

19


NetherlandsHigh tide

Country Risk Level

MEDIUM



to increase by +7% in 2013 before sta-bilizing somewhat in 2014.

Private consumption will remain innegative territory in 2013 (-1.1%). Therising unemployment rate (7.9% in2013 and 8.1% in 2014, compared with6.4% in 2012), the persistently very highhousehold debt ratio and the decline inreal disposable income will keep aheavy lid on household consumptionduring the next two years.

Exports will remain disappointing in2013, but will bolster growth in 2014.The weakness of external demand willnot allow exports to post satisfactoryperformances for the Dutch economy.On the other hand, weak domesticdemand will curb imports, so foreigntrade should contribute positively togrowth in 2013. Exports are expected topick up in 2014 thanks to a moderaterecovery in economic activity in thecountry’s main trading partners(eurozone countries)._CC/MI

Austerity will continue at all costs.The deficit will exceed -3% again thisyear (-3.5% in 2013) and in 2014(-3.2%). The country is stuck in a spiralin which the recession is drasticallyreducing the government’s expectedrevenues, leading to an increase inspending (unemployment benefits) inturn preventing the targets set frombeing reached. However, an additionalyear to meet the -3% fiscal deficit tar-get agreed by the EuropeanCommission at end-May 2013 reducesthe impact of austerity (at least in theshort-term).

The investment cycle will pick up onlyin 2014. The deterioration in the hous-ing market (very weak prices and fewtransactions) is expected to continuein 2013 and affect the country’s finan-cial stability (the government has hadto nationalise a troubled bank becauseof its mortgage loan portfolio). As aresult, credit access difficulties will getworse, in particular for SMEs, for whichmore than 50% of banks alreadydecided to tighten financing condi-tions in Q1. In this context, and whilethe economy continues to be beset byproduction overcapacity and weakdemand prospects, no recovery ininvestment is expected in the shortterm. Business insolvencies are likely


Agriculture 172 20.3% 2.0%Industry 950 21.0% 11.0%Construction 1,464 34.3% 17.0%Trade 1,865 17.4% 21.6%Hotels & restaurants 400 -5.9% 4.6%Transport - communication 552 45.3% 6.4%Finance & business services 2,673 17.5% 31.0%Others 540 19.6% 6.3%Total 8,616 20.7% 100%* Jan-Dec '11 to Jan-Dec '12Source: CBS



0

2,000

4,000

6,000

8,000

10,000

0.4

0.6

0.8

1.0

14121008060402009896949290

9,11

09,

220

8,61

6

Insolvency rate (in %, right axis)Number of cases (left axis)

Sources: SCB, Euler Hermes forecasts

OverviewDutch economic activity continued to decline in Q1 2013 (-0.4% q/q) due to sharpcontractions in public spending (-0.7%) and investment (-7.4%), while privateconsumption and exports held up (+0.1%). The economy is expected to end 2013in recession (-1.0%) as difficulties in credit access (linked to the housing crisis)weigh on domestic demand: -1.1% for private consumption and -11.6% forinvestment. A gradual recovery is forecast in 2014 (+0.6%), underpinned byexternal demand in particular.

Economic forecasts

NETHERLANDS share 2011 2012 2013 2014GDP 100% 1.0 -1.3 -1.0 0.6Consumer Spending 45% -1.1 -1.6 -1.1 0.5Public Spending 27% 0.2 -0.7 -1.2 -0.3Investment 17% 6.1 -4.0 -11.6 -0.5Stocks * 1% 0.2 0.2 0.1 0.0Exports 84% 4.1 3.2 1.3 3.4Impots 74% 4.2 3.3 -0.8 3.2Net exports * 10% 0.3 0.2 1.7 0.5Current account ** 61 61 56 55Current account (%of GDP) 10.2 10.1 9.3 8.9Employment 0.0 -0.1 -0.9 0.2Unemployment rate 5.4 6.4 7.9 8.1Wages 1.1 1.4 1.1 1.2Inflation 2.4 2.8 2.7 1.7General gov. balance ** -27 -25 -21 -20General gov. Balance (% of GDP) -4.4 -4.1 -3.5 -3.2Public debt (%of GDP) 66 70 74 75Nominal GDP ** 599 600 601 616

forecasts


20

Euler Hermes


Agriculture 171 3.0% 2.3%Manufacturing 423 4.7% 5.7%Construction 1,202 13.2% 16.1%Automotive indutry 222 5.7% 3.0%Wholesaling 551 6.6% 7.4%Retailing 868 5.6% 11.6%Hotels & restaurants 463 -9.4% 6.2%Transports & comm 628 8.5% 8.4%Finance & real estate 303 -5.6% 4.1%Others 2,640 11.6% 35.3%Total 7,471 7.4% 100%* Jan-Dec '11 to Jan-Dec '12Source: SCB


The policymix is pro-growth. Thegovernment continues to bolstergrowth. In addition to an activeemployment policy involving the rein-forcement of integration mechanismsaimed at precarious groups (youth,immigrants), the government hasintroduced measures to stimulate sup-ply through a cut in the corporate taxrate (from 26.3% to 22%). Moreover, in acontext of low inflation, the monetaryauthorities have reduced the key policyrate to 1% in order to boost domesticdemand. As for the housing market,with mortgage interest rates at a low,the authorities are not letting up onefforts to lower market prices, whichare deemed overvalued, by ramping upprudential requirements for mortgageloans and raising capital requirementsfor banks.

Household spending will continue todrive growth.Household confidence ison an upward trend. Employmentfigures are encouraging (+0.3% q/q inQ1) and the government's announce-ments in favour of measures to boostemployment out to 2014 suggest thisdynamic will continue. Privateconsumption is expected to remain themain growth driver, with contributionsof +1pp in 2013 and +1.1pp in 2014.

The pick-up in exports has been post-poned to 2014. After decreasing mar-kedly in Q3 and Q4 2012 (respectively0.4% q/q and 0.8% q/q), exports conti-nued to decline in Q1 2013 (-1.4% q/q),strongly affected by the eurozone sove-reign debt crisis and the slowdown inglobal demand. They are forecast tobounce back in 2014 (+4.5%) on theback of a recovery in the eurozone andthe progressive return of globaldemand.

Companies will remain cautious in2013. The lack of investment remainedthe main drag on Swedish growth in Q12013 (+0.4% q/q). Both industry andhouseholds continue feel the cold.However, market improvements late inthe year and more favourable borro-wing conditions should underpin anupturn in 2014 (+3.1%). In this context,insolvencies should register a signifi-cant slowdown in 2014 (+2% after +10%in 2013)._VR/MI

SwedenBalanced


0

5,000

10,000

15,000

20,000

25,000

0

1

2

3

4

5

14121008060402009896949290

8,47

08,

220

7,47

1



Sources: SCB, Euler Hermes forecasts

700 carOverviewAfter slowing in 2012 (+1.1%), Swedish economic growth is expected to stabilizein 2013 (+1.3%) before accelerating moderately in 2014 (+2.2%). Growth will beunderpinned by an increase in consumption (+2.0% and +2.2% in 2013 and 2014,respectively) and a gradual pick-up in exports (+4.5% in 2014 after +0.9% in 2013),as well as an accommodating monetary policy. After dipping in 2013 (-0.9%),reflecting the uncertainty overhanging external demand, investment is expectedto pick up gradually in 2014.

Country Risk Level

LOW

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **SEKbn


forecasts

Economic forecasts

SWEDEN share 2011 2012 2013 2014GDP 100% 3.8 1.1 1.3 2.2Consumer Spending 48% 2.1 1.6 2.0 2.2Public Spending 27% 1.3 1.1 0.9 0.4Investment 19% 6.4 3.2 -0.9 3.1Stocks * 0% 0.5 -1.0 0.2 0.2Exports 49% 7.3 1.3 0.9 4.5Imports 43% 6.4 0.5 0.8 4.6Net exports * 6% 0.8 0.4 0.1 0.2Current account ** 246 255 260 245Current account (% of GDP) 7.0 7.1 7.1 6.4Employment 2.2 0.2 0.7 0.7Unemployment rate *** 7.8 8.0 8.1 7.9Wages 1.2 3.4 2.1 2.5Inflation 2.6 0.9 0.5 1.7General gov. balance ** 3 -25 -58 -38General gov. balance (% of GDP) 0.1 -0.7 -1.6 -1.0Public debt (% of GDP) 38 38 40 41Nominal GDP ** 3,500 3,562 3,649 3,800

21


Household consumption is forecast tomoderate in the next two years.Consumer spending will be dampenedby higher inflation, slower wagegrowth and higher unemployment.Overall, private consumption is expec-ted to rise by +5.5% in 2013 and +4.5%in 2014, after +6.8% in 2012.

Public spending is expected to shift tomodest growth. Although a budgetplan for 2013-15 aims at further fiscalconsolidation, some fiscal stimulus topropel the economy is expected, lea-ding to annual government consump-tion growth of around +1.5% in 2013-2014. The fiscal account is likely to shiftto small deficits.

Investment will remain below poten-tial. Given the muted economic out-look at home as well as in major tra-ding partners in Europe, investmentgrowth is projected to slow from +6% in2012 to +4.5% in 2013, before pickingup to +6.5% in 2014 when the globaleconomy should recover. The rise ininsolvencies should moderate from+10% in 2012 to +2% in 2013 and shiftto a small decline of -3% in 2014.

Weak external demandwill continueto retard economic activity. Althoughexport growth is forecast to pick up to

+3.2% in 2013 and +5.2% in 2014, it willremain well below the rates seenduring the oil price boom until 2007and will be outpaced by import expan-sion of more than +9% annually, suchthat net trade will make a negativecontribution to overall growth in 2013-2014. The current account will narrowbut still post solid annual surpluses ofabout 2.5% of GDP.

Monetary policy is likely to ease laterin 2013. Despite increasing politicalpressure for monetary easing to sup-port growth, the central bank has keptits key policy interest rate at 8.25%since September 2012 as inflation haspersisted above its 5-6% target rangefor 2013, reaching a 21-month high of7.4% y/y in May, mainly owing to stillhigh food prices resulting from thepoor 2012 harvest. As this effect willfade, consumer prices should declinein H2, providing room for some mone-tary easing._MS

RussiaDisappointing growth


0

20,000

40,000

60,000

80,000

100,000

14121008060402009896949290

14,0

0014

,400

14,0

72

Number of cases

Sources: Superior Arbitrage Court of Russia,Euler Hermes forecasts

OverviewAOverviewThe Russian economy lost further momentum in Q1 2013, expanding by just+1.6% y/y, after +1.8% y/y in Q4 2012 and +3.4% in full year 2012. Domesticdemand eased slightly but remained the key growth driver in Q1 while lowercommodity prices and the ongoing subdued global economy kept externaldemand weak. Business sentiment indicators suggest continued sluggishness inQ2, but economic activity is projected to pick up gradually in H2 2013, not leastbecause of a better harvest than a year ago. Overall, full year GDP growth shouldease to +3.2% in 2013 before picking up to +3.8% in 2014.

Country Risk Level

SENSITIVE

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **RUBbn

Sources: IHSGlobal Insight, national data, Euler Hermesforecasts

Trading partnersUSDbn, exports (FOB), imports (CIF)12-monthscumulative figures to end of Dec 2011


Country Exports Share of totalTotal 496 100%of which, eurozone 149 30.0%Netherlands 61 12.3%China 32 6.5%Italy 28 5.6%Germany 23 4.6%Poland 21 4.3%Country Imports Share of totalTotal 295 100%of which, eurozone 74 25.1%China 46 15.6%Germany 30 10.0%Italy 13 4.3%USA 11 3.8%France 9 3.0%

forecasts

Economic forecasts

RUSSIA share 2011 2012 2013 2014GDP 100% 4.3 3.4 3.2 3.8Consumer Spending 62% 6.7 6.8 5.5 4.5Public Spending 16% 1.5 -0.2 1.2 1.8Investment 23% 8.4 6.0 4.5 6.5Stocks * -2% 3.3 0.4 0.3 0.3Exports 35% 0.4 1.4 3.2 5.2Imports 32% 20.3 9.5 9.2 9.3Net exports * 3% -4.4 -1.7 -1.1 -0.5Current account ** 2860 2325 1855 1875Current account (% of GDP) 5.1 3.7 2.7 2.5Employment 3.2 1.3 -0.2 0.4Unemployment rate 6.1 5.1 5.4 5.2Wages 4.2 7.8 4.5 3.9Inflation 8.4 5.1 6.3 5.2General gov.balance ** 837 250 -206 -750General gov. Balance (% of GDP) 1.5 0.4 -0.3 -1.0Public debt (% of GDP) 12 11 10 12Nominal GDP ** 55,800 62,599 68,700 75,000


22

Euler Hermes

Euler HermesFrance

Germany and the smaller contractionin activity in the peripheral countriesin 2014 should pave the way for arecovery (albeit modest) in exports(+1.3%).

Weak household confidence willweigh on private consumption. Theongoing rise in the unemployment rate(to 11% in 2014) and the decline inhousehold purchasing power in thewake of new tax measures will be a dragon household consumption in 2013(-0.2% in 2013) before a slight recoverytakes root in 2014 (+0.2%) underpinnedby a still-high savings rate.

The -3% deficit target has been pushedback to 2015. France has been giventwo more years (from 2013 to 2015) toreduce its fiscal deficit to -3% of GDP.Although this delay sends a positivesignal, it has not had any impact onour growth estimates due to the gov-ernment's excessively optimistic fore-casts (especially for 2014). Additionalbudgetary consolidation measures arelikely to be needed to reach the -3% tar-get in 2015, which we estimate ataround EUR 30 billion. Staying on thepath laid out for public finances will becrucial in the face of foreign investors,who now hold close to 65% of the totaldebt (or around EUR 1,100 billion).

The time for structural reforms hascome. In keeping with European

Commission demands, France isexpected to undertake a series of struc-tural reforms with a view to increasingthe efficiency of its overly complex taxsystem, in light of numerous tax andsocial security loopholes, the cost ofwhich remains very high (10% of GDP).This includes reforming the tax systemin order to support companies, as wellas reforming the pension system andthe labor market. Although thesereforms look set to be painful initially,as they risk weighing on domesticdemand in the short term, they shouldincrease potential growth in themedium term and make the budgetaryadjustment sustainable._AB/LS

Business investment will remain list-less. Insolvencies are on an uptrend(+2% in 2013). Companies' tax burdenhas risen continuously since 2010 anduncertainty overhanging new meas-ures should continue to weigh onprospects for business investment(-2.3% in 2013). In fact, surveys on busi-ness investment intentions continueto point to weak prospects in terms ofexpanding production capacity. Theconfidence of industrial companieshas been depressed for more than oneyear, while companies' margins are attheir lowest since 1988. The easing ofsocial security contributions in 2014following the tax credit for competi-tiveness and employment (CICE) looksset to have only a minimal impact inthe absence of a policy targetinggrowth sectors exposed to interna-tional competition. Funding problemsare expected to remain prominentamong the factors holding back theinvestment cycle, given that, at EUR12billion out to 2017, the firepower of thePublic Investment Bank (BPI) is verylimited.

Exports, until now the last remaininggrowth lever, are losingmomentum.External demand will be listless in2013 due to weak demand in theperipheral eurozone countries, leadingFrench exports to decline in 2013(-0.5%). On the other hand, the morepronounced recovery expected in

FranceFacing the inconvenient truth

Towatch…

>The resilience of French consumption in light ofthe high savings rate.>The impact of the tax credit for competitivenessand employment and the introduction ofadditional measures to support companies.>The implementation of structural reforms.>The effects of employment policies (so-called“Generation Contracts” and the European 'NewDeal') on the record-high unemployment rate.The evolution of public finances._

Country Risk Level

LOW

OverviewGDP growth surprised on the downside in Q1 2013 (-0.2% q/q) due to contractions in private consumption (-0.1% q/q), businessinvestment (-0.9% q/q) and the last remaining growth driver, exports (-0.5% q/q). In 2013, the economy is expected to dip into recession(-0.3%) due to an across-the-board contraction in the main components of activity: household consumption will see its second year ofdecline (-0.2%), the decline in investment will gather pace (-2.3%) and exports will run out of steam (-0.5%). In 2014, GDP growth will pick-up modestly (+0.4%) on the back of a recovery in consumption (+0.2%) and exports (+1.3%), while investment will continue to contract(-0.1%). Against this backdrop, the -3% deficit objective has now been pushed back to 2015, but the time for structural reforms has come:the tax system, the pensions system and the labor market all require reform.



23




Country Exports Share of totalTotal 584 100%of which, eurozone 283 48.4%Germany 98 16.7%Italy 48 8.3%Spain 44 7.4%Belgium 43 7.4%UK 39 6.7%Country Imports Share of totalTotal 701 100%of which, eurozone 396 56.6%Germany 134 19.1%Belgium 79 11.3%Italy 54 7.7%Netherlands 53 7.5%Spain 46 6.6%

InsolvenciesNumber


-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.5

14121008060402009896949290

forecasts


-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

09 10 11 12 13 14

forecasts


Net exports

StocksGDP


Trading partners Insolvenciesby sector2012

Agriculture 1,212 -4.3% 2.0%Manufacturing 4,287 -0.2% 7.0%Utilities 164 5.8% 0.3%Construction 15,157 1.3% 24.9%Retailing 10,025 3.3% 16.4%Wholesaling 3,284 -2.9% 5.4%Hotels & restaurants 6,353 8.8% 10.4%Transport-communication 3,530 5.9% 5.8%Financial & real estate 3,531 4.9% 5.8%Business activities 6,861 6.7% 11.3%Households services 5,070 1.8% 8.3%Other activities & services 1,484 -30.3% 2.4%Total 60,958 1.9% 100%* Jan-Dec '11 to Jan-Dec '12Source: Euler Hermes France


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1.5

2.0

2.5

14121008060402009896949290

61,5

2062

,190

60,9

58



Source: Euler Hermes






-20

-15

-10

-5

0

5

10

-50

-40

-30

-20

-10

0

10

20

13121110090807060504030201009998


-3

-2

-1

0

1

2

3

4

5

6

-40

-35

-30

-25

-20

-15

-10

-5

0

5

Confiance des ménages(axe d)Ventes au détail (en % axe g)

13121110090807060504030201009998

GDP and componentsChange over the period, unless otherwise indicated: *contribution toGDPgrowth**EUR bn


forecasts

Economic forecasts

FRANCE share 2011 2012 2013 2014GDP 100% 2.0 0.0 -0.3 0.4Consumer Spending 58% 0.5 -0.3 -0.2 0.2Public Spending 25% 0.4 1.4 1.0 0.2Investment 19% 3.0 -1.2 -2.3 -0.1Construction 5% 2.3 -0.4 -2.8 -0.2Equipment 14% 3.3 -1.5 -2.4 0.0

Stocks * 0% 1.1 -0.8 -0.1 0.0Exports 28% 5.6 2.5 -0.5 1.3Impots 29% 5.3 -0.9 -0.9 0.5Net exports * -1% 0.0 1.0 0.1 0.2Current account ** -39 -47 -38 -34Current account (%of GDP) -1.9 -2.3 -1.8 -1.6Employment 0.7 -0.2 -0.5 0.4Unemployment rate 9.6 10.2 10.9 11.0Wages 2.7 0.9 0.0 0.4Inflation 2.1 2.0 1.2 1.6General gov. balance ** -103 -96 -81 -75General gov. Balance (% of GDP) -5.1 -4.7 -4.0 -3.6Public debt (%of GDP) 86 90 93 95Nominal GDP ** 2,000 2,032 2,062 2,096


24

Euler Hermes

Euler HermesDACH*

Corporate investment is expected toremain weak in 2013. Spending onmachinery and equipment declined by-0.9% q/q in Q1 2013. Investment inconstruction contracted even more, by-2.1%, with building activity being ham-pered mainly due to the effects of theweather. For investment in machineryand equipment the downwards trendhas continued for more than a yearnow due to the high level of uncer-tainty and dampened expectations as aresult of the crisis and with financingterms still favourable. After the prolon-ged dry spell in overall investment acti-vity and a further marked drop of -1.7%in 2013, we expect investments to pickup in 2014 (+2.7%). For the first timesince 2009 insolvencies are likely toincrease again, although by only amodest amount of +1% in 2013, follo-wed by a drop of -2% to 28,100 in 2014.

Public-sector finances are in a compa-ratively healthy state. The financialsituation of the state is likely to dete-riorate slightly in 2013, but improveagain in 2014. In the case of the generalgovernment fiscal balance, following asmall surplus in 2012 (0.2% of GDP) aslight budget deficit (-0.4%) is to beexpected in 2013 in the wake of theeconomic downturn and in view of therelatively stronger growth of expendi-ture, which will give way to a marginalbudget surplus (0.3%) in 2014. With amoderately increasing nominal gross

domestic product, the debt ratio,starting from 81.9% of GDP in 2012,could drop to a probable 81% in 2013and 79% in 2014._RG

Exports are expected to decrease in2013. Foreign business tended toremain weak in view of the continuingdifficult global setting, with exportsdown -1.8% q/q, following -2.4% q/q inthe previous quarter. Exports of goodsto the eurozone performed at a belowaverage level (38% of total exports).Exports to non-European countriesshowed a mainly negative trend. At thesame time imports decreased by -2.1%.In 2013 exports will decrease (-1.7%)although net exports only put a slightdamper on the economy (-0.1pp)before a gradual recovery sets in in2014, with exports up +3.9% and agrowth impetus of 0.2pp.

Consumer spending is set to remainstable.Consumer spending increasedsubstantially in the first quarter, by+0.8% q/q, following a poor performancein the previous quarter (-0.3% q/q) andprovided the mainstay of growth.Overall, the situation is characterized bya positive basic trend with pronouncedconsumer sentiment despite the cur-rent flat economy. Consumer spendingcontinues to benefit from the stabletrend in the job market, although themomentum lost momentum, substan-tial wage increases and declining infla-tion rate. Given these underlying condi-tions, for 2013 we project an increase inconsumer spending by +1.0%, up from+0.7% in 2012. In 2014 the growth rate isexpected to increase to +1.2%.

GermanyCaught in the vortex

OverviewThe German economy was close to stagnation in the first quarter of 2013. GDP rose by +0.1% q/q following a drop of -0.7% in Q4 of 2012.While consumer spending alone remained strong, the prolonged recession in the eurozone had a marked impact on foreign trade.Furthermore, companies were still reluctant to invest. The outlook deteriorated in spite of a trend towards brighter leading indicators. Theeconomic crisis in Europe is proving more stubborn than expected and continues to impact negatively on exports while uncertainty ishardening the hesitant attitude of investors. Against this backdrop the forecast has been revised significantly downward. An increase inGDP of a mere +0.3% is now projected, in 2013, down from +0.9% in 2012, followed by a moderate increase to +1.5% in 2014.

Towatch…

>Changes in the business climate.>Trend in order receipts, especially orders fromthe eurozone on the one hand and outside Europeon the other.>Investment trends._

Country Risk Level

LOW

* Germany, Austria, Switzerland



25




Country Exports Share of totalTotal 1392 100%of which, eurozone 567 40.7%France 141 10.1%Netherlands 97 6.9%UK 91 6.6%Italy 86 6.2%Austria 80 5.8%Country Imports Share of totalTotal 1240 100%of which, eurozone 542 43.7%Netherlands 173 14.0%France 95 7.7%China 88 7.1%Belgium 80 6.5%Italy 67 5.4%



-2

-1

0

1

2

3

4

5

6

7

8

121008060402009896949290 14

forecasts


-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

09 10 11 12 13 14

forecasts


Net exports

StocksGDP


Trading partners Insolvenciesby sector in2012

Manuf. industry 2,246 -0.4% 7.9%Construction 4,512 -5.5% 15.9%Trade 5,224 -9.2% 18.5%Transport & communications 2,965 -3.0% 10.5%Hotels & restaurants 3,011 -11.0% 10.6%Real estate 980 -14.9% 3.5%Finance & business services 6,385 -3.1% 22.6%Other services 2,725 -5.4% 9.6%Others 249 -3.5% 0.9%Total 28,297 -6.0% 100%

* Jan-Dec '11 to Jan-Dec '12Source: Destatis


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0.3

0.6

0.9

1.2

1.5

14121008060402009896949290

28,1

0028

,700

28,2

97



Sources: DeStatis, Euler Hermes forecasts






-25

-20

-15

-10

-5

0

5

10

15

-50

-40

-30

-20

-10

0

10

20

13121110090807060504030201009998


-5

-4

-3

-2

-1

0

1

2

3

4

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

13121110090807060504030201009998




forecasts

Economic forecasts

GERMANY share 2011 2012 2013 2014GDP 100% 3.1 0.9 0.3 1.5Consumer Spending 56% 1.7 0.7 1.0 1.2Public Spending 19% 1.0 1.2 0.5 0.7Investment 17% 6.4 -1.9 -1.7 2.7Construction 9% 6.0 -0.9 -0.5 1.8Equipment 9% 6.7 -2.9 -2.8 3.6

Stocks * 0% 0.2 -0.5 0.0 0.0Exports 52% 7.9 4.5 -1.7 3.9Impots 45% 7.5 2.6 -1.7 4.1Net exports * 7% 0.6 1.1 -0.1 0.2Current account ** 161 187 184 192Current account (%of GDP) 6.2 7.1 6.8 6.9Employment 1.4 1.1 0.6 0.6Unemployment rate 6.7 6.5 6.7 6.6Wages 1.7 2.7 2.3 2.1Inflation 2.1 2.0 1.5 1.9General gov. balance ** -20 4 -11 8General gov. Balance (% of GDP) -0.8 0.2 -0.4 0.3Public debt (%of GDP) 80 82 81 79Nominal GDP ** 2,589 2,646 2,704 2,771


26

Euler Hermes

SwitzerlandStrong, but uneven

Country Risk Level

LOW

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **CHFbn


Insolvencies by region in 2012

Zurich 754 -1.8% 16.7%Berne 323 -12.2% 7.2%East Switzerland 485 -3.6% 10.7%NorthWest Switzerland 751 -0.9% 16.6%Central Switzerland 476 -8.3% 10.5%West Switzerland 1,399 -2.6% 31.0%Ticino 325 -5.5% 7.2%Total 4,513 -3.9% 100%* Jan-Dec '11 to Jan-Dec '12Sources: OFS, Creditreform


Foreign trade is expected to growmoderately in 2013. Exports of goodsdeclined by -1.6% in Q1 2013 in view ofthe subdued global conditions withimports of goods likewise decreasing(-1.7%). In spite of the negative trend,net exports contributed a positive0.1pp to growth. In 2013 exports arelikely to expand at a similarly moder-ate pace to that in 2012 (+1.1%) andpick up momentum in 2014 (+3.1%) asforeign demand increases. Net exportsare supporting growth to the tune of0.2pp in 2013, but will remain neutralin 2014.

Private consumption will remainrobust. At start 2013, consumer spend-ing continued to grow robustly, by+0.6% after +1.1% in the previous quar-ter. Consumer demand is set to expandfurther in the coming quartersalthough momentum is likely to slow alittle, with expected growth rates put at+2.0% in 2013 and +1.4% in 2014. This isprimarily attributable to a continuedsolid, albeit slightly dampened, trendon the job market by internationalstandards and solid purchasing power.

A further slight decline in investmentis likely in 2013. In Q1 2013, spendingon machinery and equipment was cutby a further -0.8% following a brief

upturn. Companies’ willingness toinvest remains subdued in view of theuncertainty regarding the effects of theEuropean debt crisis. In 2013 overallinvestment should be down by a fur-ther -0.2% following a -0.2% drop in2012 although perspectives are gradu-ally improving. For 2014 we projectsignificant growth of +2.2%. The down-ward trend in insolvencies as a resultof the stable economy should continuewith the number of company bank-ruptcies likely to decrease by -2% in2013 and -4%, to 4,250 cases, in 2014.The state of public finances remainsfavourable, especially compared toother countries. The debt level isdecreasing continuously in the wake ofthe expected small budget surplusesand could reach a level of just under35% of GDP in 2014._RG


0

1,000

2,000

3,000

4,000

5,000

1.0

1.5

2.0

14121008060402009896949290

4,25

044

204,51

3,



Sources: OFS, Euler Hermes forecasts

Switzerland’s economy once again provided a pleasant surprise. GDP grew by arobust +0.6% q/q in Q1 2013, up from +0.3% in Q4 2012, which is remarkable inthe context of a European economy still embroiled in a recession. Privateconsumer spending proved to be by far the most important economic mainstaywhile both exports and capital formation shrank. In 2013, growth remains unevenand the outlook somewhat limited as Switzerland can no longer completelyescape the effects of a weak European economy. All in all, GDP is expected to riseby +1.3% in 2013 and +1.5% in 2014.

Economic forecasts

SWITZERLAND poids 2011 2012 2013 2014GDP 100% 1.9 1.0 1.3 1.5Consumer Spending 59% 1.2 2.5 2.0 1.4Public Spending 11% 2.0 0.5 0.7 0.9Investment 21% 4.0 -0.2 -0.2 2.2Stocks * -1% -0.1 -0.2 -0.1 0.1Exports 54% 3.8 1.1 1.1 3.1Impots 44% 4.2 2.1 0.8 3.9Net exports * 10% 0.2 -0.3 0.2 0.0Current account ** 49 80 68 72Current account (%of GDP) 8.4 13.6 11.3 11.8Employment 1.0 1.8 1.0 0.9Unemployment rate 3.0 2.8 3.0 3.0Wages 1.4 1.1 1.0 1.5Inflation 0.3 -0.7 -0.3 0.3General gov. balance ** 3 2 1 2General gov. Balance (% of GDP) 0.5 0.3 0.1 0.3Public debt (%of GDP) 35 35 35 35Nominal GDP ** 587 593 601 614

forecasts

27


ment in 2013 we project a decline of-1.3% following +1.5% in 2012, given theweak global demand and uncertainsales prospects. However, in 2014 thepace will pick up significantly (+2.8%).The number of corporate insolvenciesis likely to increase further in 2013(+4%) and to flatten at the previousyear’s level in 2014 (+0%).

Consolidation of public financesremains balanced. Following theconsolidation program for the public-sector budget, which aims to achievean even balance between the viabilityof public finances and economicgrowth, a minimal reduction of thedeficit ratio to -2.4% of GDP seems pos-sible for 2013, followed by an evensmaller deficit of -1.9% in 2014. Thedebt ratio, starting from 73.4% of GDPin 2012, will increase further to 75.5% in2014._RG

Foreign trade is still lacking bounce.In Q1 2013, exports displayed a modestuptrend, increasing by +0.3% q/q. Theregional picture was a mixed one withoverall stronger demand from non-EUcountries being partially offset bysubstantial drops in exports to the EU.Foreign trade is likely to remain sub-dued for the time being, but pick upnoticeably in the course of the expec-ted recovery of global demand in 2014.

Private consumer spending failed tobudge for the fifth quarter in succes-sion. Consumer demand remainedunchanged in Q1 2013 (+0.0% q/q)which was mainly due to the weaktrend of real disposable incomes com-bined with continuing subdued expec-tations. This trend is unlikely tochange much in the short term in spiteof the declining inflation rate, espe-cially as the hitherto robust job marketlooks set to deteriorate. We assumeconsumer spending to rise by +0.1% in2013, before climbing by a strong rateof +0.9% in 2014.

Hitherto investment activity has beenunable to escape the negative trend.The downtrend in investment accele-rated slightly in Q1 2013 (-0.5% q/q fol-lowing a previous -0.3%). In the case ofspending on machinery and equip-

AustriaTaking a break fromgrowth

Country Risk Level

LOW



OverviewAustria is being pulled into the European economic crisis. GDP stagnated in Q12013 (+0.0% q/q) following a slight decline in the previous quarter (-0.1%). Thisstagnation phase has now already lasted one year. For the time being the outlookremains subdued in view of the fragile global setting and the high level ofuncertainty prevailing. According to our projection, GDP growth is set to slow in2013 to +0.3% following +0.8% in 2012 before the economy picks up speed againin 2014 (+1.9%) in the wake of the expected international upturn.


Construction 1,045 11.4% 17.3%Industry 946 -7.1% 15.7%Transport & comm. 682 4.4% 11.3%Hotels & restaurants 869 -4.5% 14.4%Other services 1,062 5.3% 17.6%Others 1,437 7.2% 23.8%Total 6,041 2.9% 100%

* Jan-Dec '11 to Jan-Dec '12Source: KSV



0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1.0

1.5

2.0

14121008060402009896949290

6,20

06,

180

6,04

1



Sources: KSV, Euler Hermes forecasts

Economic forecasts

AUSTRIA share 2011 2012 2013 2014GDP 100% 2.7 0.8 0.3 1.9Consumer Spending 53% 0.9 0.2 0.1 0.9Public Spending 18% -0.3 1.0 0.9 0.3Investment 21% 6.3 1.4 -0.4 2.3Stocks * 2% 0.6 -0.1 -0.1 0.2Exports 58% 7.0 1.4 1.4 4.1Impots 52% 7.0 1.1 1.1 3.2Net exports * 6% 0.4 0.3 0.2 0.7Current account ** 4 6 6 9Current account (%of GDP) 1.4 2.0 1.9 2.7Employment 1.5 1.5 0.5 0.7Unemployment rate 4.2 4.4 4.7 4.6Wages 2.0 3.3 2.2 1.7Inflation 3.3 2.5 1.8 2.2General gov. balance ** -7 -8 -8 -6General gov. Balance (% of GDP) -2.5 -2.5 -2.4 -1.9Public debt (%of GDP) 73 73 75 76Nominal GDP ** 301 309 315 327

forecasts


28

Euler Hermes

Euler HermesMediterranean and Africa

ingly exposed to competition fromemerging countries, is holding backthe recovery in Italian exports (-0.3% in2013 and +3.5% in 2014). In fact, thecost competitiveness of Italian compa-nies has not really improved since thecrisis, given the minor adjustment inthe labor cost.

Political stability remains themainrisk factor in the short term. TheItalian general elections, which ini-tially resulted in no conclusive out-come, have (for now) eased concernssurrounding the political instability onthe edge of which the country was tee-tering. The 'grand coalition' led byEnrico Letta, Deputy Secretary of theDemocratic Party, insures a continua-tion in reforms implementationprocess, although now more orientedon reshaping political institutions andless on continuing the structuralreforms initiated by the Monti govern-ment. The high social risk and thefragility of the governing coalitionincrease the risk of fresh elections bythe year end, once the new electorallaw has been voted.

Excessive public debt exposes theItalian economy to volatile investorconfidence. Despite the recent easingof financial tensions (-200bp for the10-year bond rate since mid-2012 to4.2%) and the primary fiscal surplus(+2.3% of GDP in 2012), the lack of eco-

nomic growth and low long-term inter-est rates will push the Italian debt-to-GDP ratio up to 134% in 2014, the sec-ond-highest ratio in the eurozone afterGreece. Thus, despite the ongoing fis-cal adjustment, the vicious circle ofhigh debt and weak economic growthwill persist in the coming years in theabsence of a European policy to mutu-alize past debts._AB

Household consumption and privateinvestment are expected to decline in2013 and 2014. The deterioration inthe labor market, with the unemploy-ment rate likely to exceed 12% in 2014,the decline in the savings rate since2009 and the ongoing fiscal adjust-ment (+1pp hike in the VAT rate to 22%by the end of 2013) will weigh onhousehold consumption (-2.2% in 2013and -0.5% in 2014). The shortfall in bothdomestic and external demand andthe contraction in credit to non-finan-cial companies for more than a year(main source of financing for morethan 70% of Italian companies) willlead to a contraction in investment(-6.7% in 2013 and -2.1% in 2014) and aprotracted deterioration in companies'profit margins, which are now at theirlowest level since 1995. In this environ-ment, corporate insolvencies will risefor the sixth consecutive year (+7% in2013) before stabilizing in 2014.

An improvement in the competitive-ness of the Italian economy is under-way, but promises to be slow. Thetrade surplus recorded for the firsttime in ten years in March 2013 isexpected to continue to strengthen.Nevertheless, many regulatory andinstitutional obstacles continue tohamper the Italian business climate.This, just like the limited innovationcapacity of Italian companies and thestructure of exports, which are increas-

ItalyRomewas not built in one day

Towatch…

>Progress in the structural reforms.>Political stability in light of the fragility of thecurrent governing coalition. The risk of newelections remains high.>The evolution of the fiscal deficit.>Exports’ resilience._

Country Risk Level

SENSITIVE

OverviewGDP growth declined for the seventh consecutive quarter in Q1 2013 (-0.6% q/q). Economic activity is expected to continue to contract in2013, although at a more moderate pace. The country's fiscal consolidation will continue at a slower rate but will still weigh on privateconsumption, which is expected to decline by -2.2% this year. Despite progress with structural reforms, investment will remain in thedoldrums (-6.7% in 2013) due to the weak economic outlook and difficulties in accessing credit. The Italian economy is expected to return(only just) to a growth track in 2014 (+0.3%), notably on the back of an upswing in exports (+3.5%) and slowing contractions in privateconsumption (-0.5%) and investment (-2.1%). Nevertheless, political uncertainty poses a risk to this scenario, which is contingent on astable government pursuing structural reforms.

29






Country Exports Share of totalTotal 515 100%of which, eurozone 217 42.0%Germany 69 13.3%France 61 11.8%USA 30 5.9%Spain 28 5.4%Switzerland 28 5.4%Country Imports Share of totalTotal 525 100%of which, eurozone 236 45.0%Germany 87 16.5%France 46 8.9%China 41 7.7%Netherlands 29 5.5%Spain 25 4.7%



-4

-3

-2

-1

0

1

2

3

14121008060402009896949290

forecasts


-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

09 10 11 12 13

forecasts


Net exports

StocksGDP



Manufacturing 2,208 -6.3% 17.7%Construction 2,911 3.1% 23.4%Services 6,110 2.7% 49.1%Others 1,213 14.0% 9.7%Total 12,442 2.0% 100%

* Jan-Dec '11 to Jan-Dec '12Source: Cerved


0

5,000

10,000

15,000

20,000

0.1

0.2

0.3

0.4

0.5

14121008060402009896949290

13,3

0013

,300

12,4

42



Sources: Istat,Ministerio della Giustizia, Bankitalia,Euler Hermes forecasts






-30

-25

-20

-15

-10

-5

0

5

10

15

-40

-30

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0

10

20

13121110090807060504030201009998


-4

-3

-2

-1

0

1

2

3

4

-40

-35

-30

-25

-20

-15

-10

-5

0

5

13121110090807060504030201009998




forecasts

Economic forecasts

ITALY share 2011 2012 2013 2014GDP 100% 0.5 -2.4 -1.8 0.3Consumer Spending 60% 0.1 -4.3 -2.2 -0.5Public Spending 21% -1.2 -2.9 -0.6 -0.6Investment 19% -1.4 -8.0 -6.7 -2.1Construction 9% -2.1 -6.4 -6.8 -2.1Equipment 9% -0.6 -9.6 -6.6 -2.1

Stocks * 0% -0.5 -0.6 0.0 0.0Exports 28% 6.6 2.2 -0.3 3.5Impots 28% 1.1 -7.8 -3.7 -0.2Net exports * 0% 1.5 2.8 0.9 1.1Current account ** -48 -8 5 15Current account (%of GDP) -3.1 -0.5 0.3 1.0Employment 0.3 -0.3 -0.9 -0.9Unemployment rate 8.4 10.7 11.7 12.7Wages 1.8 -0.2 -0.1 0.1Inflation 2.8 3.0 1.3 1.2General gov. balance ** -58 -45 -47 -40General gov. Balance (% of GDP) -3.7 -2.9 -3.0 -2.5Public debt (%of GDP) 121 127 132 134Nominal GDP ** 1,579 1,566 1,559 1,583


30

Euler Hermes

nies (-19.9% y/y in May 2013), the mainsource of financing for Spanish compa-nies. Thus, in the absence of aEuropean policy to lower the cost offunding for corporates, the recovery ininvestment is set to be slow in comingyears (-6.4% in 2013 and -0.3% in 2014).

Household consumption will continueto suffer under the effect of the recordunemployment rate and high debt lev-els. After a sharp fall in late 2012 in thewake of the fiscal measures imple-mented in July 2012, the decline inhousehold consumption in Q1 2013has eased. However, prospects remaindownbeat due to the ongoing deterio-ration in the labor market (unemploy-ment rate at 27% in Q1 2013 and fore-cast at 28% in 2014), excessive debtlevels following the bursting of theproperty bubble and austerity meas-ures weighing on their purchasingpower. Moreover, leeway in terms of thehousehold savings rate in Spainremains almost nonexistent, havingfallen by 5pps since 2010 to less than2% of net disposable income. Thus,household consumption is expected toremain downbeat in 2013 (-2.7%) butshould show signs of stabilizing in thesecond half of 2014 (-0.3% for the fullyear).

The slowdown in the pace of budget-ary consolidation will provide somerelief to the economy. Spain's fiscal

Foreign trade, the only real driver ofgrowth. The decline in wages since2010 (-10% over the period) and theexcessive levels of household debt(123.9% of GDP at end-2012 comparedwith 98.7% in the eurozone) are weigh-ing on household purchasing powerand therefore on imports ( 4.9% in 2013and -0.1% in 2014). By contrast, exportsare likely to maintain a certaindynamism (+1.2% in 2013 and +2.7% in2014), driven by the improvement inthe economy's competitiveness and abetter diversification of exports, butlimited by weak economic prospects inthe country's main trading partners(France, Germany, Portugal and Italy).Thus, the rebalancing process of theSpanish economy remains on track,while the external deficit corrected inMarch 2013 for the first time in morethan 30 years.

Business investment continues tosuffer the effects of a shortfall infinancing and weak demand. Despitethe deleveraging process under waysince the onset of the crisis, the debt ofnon-financial companies remains veryhigh (at 100.9% of GDP at end-2012, or34pps above the European average).Moreover, the fragility of the financialsector and the high credit risk (corpo-rate insolvencies are into their fourthconsecutive year of sharp increase, up+39% in 2013) are weighing heavily oncredit to Spanish non-financial compa-

SpainGlass half full half empty

Towatch…

>The outcome of future European Summits interms of transferring Spain's bank bailout (10% ofGDP) to the ESM in order to lighten the public debtburden.>The implementation of the eight-point nationalreform plan announced by the government inApril 2013.>The evolution of the local government deficitand the trend in public finances._

Country Risk Level

SENSITIVE

deficit reached -10.7% of GDP in 2012,which was well above the official targetof -6.3%. However, significant adjust-ment efforts have been made giventhat, corrected for the banking sectorbailout, the fiscal deficit would haveclosed the year at -7% of GDP, or 2 ppsof GDP less than in 2011. The addi-tional two years granted by theEuropean Commission in late May toreduce the fiscal deficit to -3% of GDP in2016 are expected to slightly ease thesituation for the Spanish economy,although the lack of growth and therestrictive interest rate environmentwill continue to drive the public debt torecord levels (97% of GDP in 2014)._AB

OverviewThe economy remained in recession in Q1 2013 (-0.5% q/q) for the sixth consecutive quarter. However, the pace of economic contractionseems to have slowed as the decline in private consumption (-0.4% q/q) and investment (-1.1% q/q) seems to be easing. The slowdown inthe pace of budgetary consolidation, with two additional years to lower the fiscal deficit to -3% of GDP, as well as the raft of reformsannounced by the government in early 2013 should pave the way for a stabilization in activity in late 2013 before a gradual return to weakgrowth in 2014 (+0.3% after -1.6% in 2013). Looking out to 2014, private consumption and business investment will continue to contract,with foreign trade the sole real driver of growth. In fact, the scars of the crisis will continue to be a drag on the recovery's vigor: theunemployment rate is at a record level, credit to the private sector has hit a low since February 2008 and private- and public-sectordeleveraging still has a long way to go.

31






Country Exports Share of totalTotal 300 100%of which, eurozone 161 53.7%France 54 17.8%Germany 32 10.6%Portugal 25 8.3%Italy 25 8.3%UK 20 6.7%Country Imports Share of totalTotal 371 100%of which, eurozone 173 46.6%Germany 48 13.0%France 44 11.8%Italy 25 6.7%China 22 5.8%Netherlands 19 5.0%



-12

-10

-8

-6

-4

-2

0

2

14121008060402009896949290

forecasts


-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

09 10 11 12 13 14

forecasts


Net exports

StocksGDP



Agriculture 71 10.9% 0.9%Industry 1,444 28.4% 18.5%Construction &real estate 2,350 22.8% 30.1%Trade 1,447 37.9% 18.6%Hotels & restaurants 343 29.4% 4.4%Transport & comm. 252 34.0% 3.2%Business services 1,266 35.7% 16.2%Others 626 68.3% 8.0%Total 7,799 32.0% 100%

* Jan-Dec '11 to Jan-Dec '12Source: INE


0

3,000

6,000

9,000

12,000

15,000

0.00

0.05

0.10

0.15

0.20

0.25

14121008060402009896949290

12,5

0010

,900

7,79

9



Source : INE, Euler Hermes forecasts






-25

-20

-15

-10

-5

0

5

10

15

-50

-40

-30

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0

10

13121110090807060504030201009998


-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

-50

-40

-30

-20

-10

0

10

13121110090807060504030201009998




forecasts

Economic forecasts

SPAIN share 2011 2012 2013 2014GDP 100% 0.4 -1.4 -1.6 0.3Consumer Spending 58% -0.8 -2.2 -2.7 -0.3Public Spending 22% -0.5 -3.7 -3.5 -2.0Investment 20% -5.3 -9.1 -6.4 -0.3Construction 9% -9.0 -11.5 -9.0 -2.3Equipment 10% -1.6 -7.0 -4.1 1.4

Stocks * 2% -0.6 -0.4 -0.3 0.0Exports 34% 7.6 3.1 1.2 2.7Impots 36% -0.9 -5.0 -4.9 -0.1Net exports * -2% 2.7 2.9 2.1 1.0Current account ** -40 -14 5 8Current account (%of GDP) -3.7 -1.4 0.5 0.8Employment -1.9 -4.4 -4.7 -1.2Unemployment rate 21.6 24.9 27.7 28.3Wages -0.8 -5.4 -4.0 -1.2Inflation 3.1 2.4 1.4 1.0General gov. balance ** -100 -105 -69 -64General gov. Balance (% of GDP) -9.4 -10.0 -6.6 -6.0Public debt (%of GDP) 69 84 91 97Nominal GDP ** 1,063 1,050 1,048 1,062


32

Euler Hermes

The sustainability of the public debtremains amajor risk in the shortterm.While the interest rates on theEU loans were reduced and their matu-rity extended last December, the coun-try will have to start repaying its loansto the IMF in Q3 2013 and is notexpected to return to the bond marketsbefore 2015. A primary fiscal surplus of4% of GDP is needed to stabilize thepublic debt, which is expected toexceed 180% of GDP in 2013, but thecountry can hardly carry out additionalconsolidation efforts: the primary fis-cal balance has improved by 10pps ofGDP since 2011, at the cost of verypainful adjustments, and is expectedto reach +1% of GDP in 2014.

The sustained pace of the reformsshould gradually start to bear fruit in2014.Greece remains the Europeanstandard-bearer in terms of reformsimplemented since 2008, the mostimportant of which have sought toincrease the efficiency of the public sec-tor, the labor market and the businessenvironment. The decentralization ofwage negotiations and the minimumwage cut are starting to produce resultsin terms of flexibility and cost competi-tiveness. Combined with the low valueof Greek assets and ambitious privati-zation plans (EUR 22 billion by 2020), in

addition to projects to improveinfrastructure (the country's ports inparticular), this should encourageinvestment to make a real return(especially through FDI) in 2014(+1.9%).

Foreign trade will be the sole realgrowth engine in the short term. Inreducing and simplifying administra-tive procedures, the government iscounting on exports to pull the countryout of crisis (+2.8% on average in 2013-2014). In addition, the Greek economy'simproved competitiveness (in terms ofboth costs and prices), which shouldnow regain its 1995 level, will bolsterexports and enable the currentaccount balance to continue toimprove. The latter is expected to reach-1.4% of GDP in 2014 (compared with -9.9% of GDP in 2011)._LP/AB

GreeceNomagic bullet


0

500

1,000

1,500

2,000

14121008060402009896949290

1,59

01,

540

1,40

0

Number of cases

Source: EYSE, Euler Hermes forecasts

700 carOverviewThe recession will drag on into 2013 (-4.3%) for the sixth consecutive year, but theeasing of financial tensions and the numerous reforms introduced since 2008(labor market, improvement in the business climate) are expected to start to bearfruit, paving the way for a near-stabilization in activity in 2014 (-0.2%) on the backof improving exports and a gradual return of investment. However, thesustainability of the public debt, which is forecast to exceed 180% of GDP in 2014,and social and political instability will remain major risk factors in the short term.

Country Risk Level

HIGH





Country Exports Share of totalTotal 31 100%of which, eurozone 9 28.6%Italy 3 9.5%Turkey 2 7.9%Germany 2 7.9%Cyprus 2 6.1%USA 2 5.2%Country Imports Share of totalTotal 60 100%of which, eurozone 24 40.1%Germany 6 10.6%Russie 6 9.4%Italy 6 9.2%China 3 5.0%Netherlands 3 3.1%

Trading partners

forecasts

Economic forecasts

GREECE share 2011 2012 2013 2014GDP 100% -7.1 -6.4 -4.3 -0.2Consumer Spending 72% -7.7 -9.1 -9.7 0.3Public Spending 19% -5.2 -4.2 -4.4 -6.0Investment 16% -19.6 -19.2 0.9 1.9Stocks * 0% 0.7 0.3 0.5 -0.2Exports 24% 0.3 -2.4 2.7 2.8Imports 31% -7.3 -13.8 -9.0 2.5Net exports * -7% 2.4 3.7 3.3 0.1Current account ** -21 -7 -3 -3Current account (% of GDP) -9.9 -3.4 -1.5 -1.4Employment -6.8 -8.3 -4.1 0.2Unemployment rate 17.7 24.3 26.2 26.0Wages -9.0 -12.9 -1.0 1.2Inflation 3.1 1.0 -0.6 -0.2General gov. balance ** -20 -13 -9 -7General gov. balance (% of GDP) -9.4 -6.5 -4.7 -3.8Public debt (% of GDP) 170 161 176 182Nominal GDP ** 209 194 184 183

33



Manufacturing 1,194 39% 18%Construction 1,965 52% 29%Trade 1,480 47% 22%Hotels & restaurants 1,073 67% 16%Others 1,015 7% 15%Total 6,727 41% 100%

* Jan-Dec '11 to Jan-Dec '12Source: COSEC


Portuguese households will continueto adjust their consumption down-wards.Household spending is cur-rently -12% below its pre-crisis peak.Confidence surveys on the whole pointto a continuation of the downtrend thisyear. The rise in the unemploymentrate to a new record high, nearing 19%in 2014 and the increase in taxation onhouseholds, as well as the low level ofprivate-sector savings – the second-lowest in the eurozone after Greece –will weigh on household consumption(-2.1% in 2014).

A partial return to themarkets isscheduled for mid-2013. Of the entirebailout program granted to Portugal in2011 (approximately EUR 80 billion),around EUR 14 billion is set to be disbursed by mid-2014. A partial returnto the markets is scheduled for this yearfor a total of EUR 13 billion. Renewedconfidence in the stability of the euro-zone has pushed Portuguese interestrates down (to 6.7% compared withmore than 13% in 2012) and thus pro-vided the conditions for two successfullong-term bond issues, for the firsttime since February 2011. The relax-ation of budgetary targets (from -4.5%of GDP in 2013 to -5.5% and from -2.5%in 2014 to -4.0%) should also be seen asa positive sign for the markets. Last, a

return to the markets is important inorder for the country to be able to ben-efit from the ECB’s bond-buying plan(Outright Monetary Transactions).However, risks remain skewed on thedownside and the stabilization of thepublic debt (above 120% of GDP)remains an issue given the still ele-vated primary deficit (-2.0% of GDP atend-2012).

Exports could pull the country out ofcrisis from 2014. The return to growthwill take place on the back of vigorousexports (+4.6%) which, combined withdeclining imports (-1.3%), will offsetthe fall in domestic demand. Thedownward adjustment in unit laborcosts (-8% since 2008) and the reduc-tion in prices make Portuguese prod-ucts more competitive relative to theeurozone. Thus, the country’s relianceon external funding will continue toease, while the current account bal-ance is likely to be in surplus in 2014(1.7% of GDP). This would amount to anadjustment of more than 13pps of GDPsince the pre-crisis peak._LP/AB

PortugalSaudade


1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0.10

0.15

0.20

0.25

0.30

0.35

14121008060402009896949290

7,40

07,

300

6,72

7



Sources: Instituto Informador Comercial, D&B,Euler Hermes forecasts

OverviewActivity contracted in Q1 2013 for the 10th consecutive quarter (-0.4% q/q).Household consumption and investment continued to fall significantly (-0.7% q/qand -2.8% q/q, respectively), although at a slightly lower rate. Only foreign traderegained positive momentum (+1.9% q/q) on the back of a rebound in exports(+2.6% q/q). Leading indicators continue to suggest that the recession will drag onin 2013 (-2.6%) under the effect of a sharp contraction in domestic demand (-5.1%in 2013). However, the recent reforms to improve competitiveness point to amoderate recovery in 2014 (+0.2%), driven by exports.

Country Risk Level

SENSITIVE



PORTUGAL share 2011 2012 2013 2014forecasts

Economic forecasts

GDP 100% -1.6 -3.2 -2.6 0.2Consumer Spending 65% -3.8 -5.6 -3.7 -2.1Public Spending 21% -4.3 -4.4 -3.7 -3.2Investment 18% -10.6 -14.5 -9.6 -0.4Stocks * 0% -0.7 0.2 -0.3 0.0Exports 35% 7.1 3.2 1.5 4.6Imports 39% -5.9 -6.7 -5.2 -1.3Net exports * -4% 4.7 3.8 2.5 2.3Current account ** -12 -3 0 3Current account (% of GDP) -7.0 -1.5 -0.3 1.7Employment -2.8 -4.2 -5.1 -0.2Unemployment rate 12.9 15.9 18.3 18.9Wages -1.5 -5.2 -3.9 -2.6Inflation 3.6 2.8 0.4 0.9General gov. balance ** -7 -11 -9 -8General gov. balance (% of GDP) -4.2 -6.4 -5.8 -4.8Public debt (% of GDP) 108 124 124 123Nominal GDP ** 171 165 163 165


34

Euler Hermes

Euler HermesAsia-Pacific

Growth will be underpinned primarilyby households.Household spendingwill drive the economic cycle. It isexpected to increase significantly untilQ1 2014, as Japanese consumersexpect a fiscal tightening in early 2014(VAT hike in April 2014) in order tostem the deterioration in publicfinances. In addition to this constraintlinked to household expectations, twoobstacles are preventing any lastingrise in household spending: (i) a lack ofvigor in terms of income (decline indisposable income in Q1 2013) com-bined with a decrease in deflationarypressures, and (ii) asset price volatilitylimiting wealth effects, and thereforeencouraging caution among share-holder households in particular.

Investment will grow albeit meagerlyrelative to themeasures implemented(+0.5% and 1.1% in 2013 and 2014).Companies have remained cautious.Investment increased by only+0.1% q/q in Q1 after two quarters innegative territory. Business surveys(PMI and Tankan) have shown animprovement in confidence since endof 2012. Nevertheless, the latest leadingactivity data point to a recovery ham-pered by still-weak order books and noclear upturn in building permits. Weexpect investment to gradually recover,in line with domestic demand (a rise inhousehold consumption until Q1 2014)and the yen’s depreciation.

Insolvencies are expected to rise in2013 following the demand decelara-tion after a rise in VAT.

Unlike in recent years, exports willcontribute positively to growth in2013 and 2014. Japanese exports rosein Q1 2013 (+3.8% q/q) and prospectsare favorable thanks to the deprecia-tion of the yen. The BoJ will continue tofuel this momentum by making theeconomy more competitive. Our viewis that this strategy is likely to bearfruit by paving the way for an improve-ment in export performances.Nevertheless, structural reforms in thelabor market will be needed to makegrowth more sustainable. _MI

The government’s announcementspoint to more growth stimulus in theshort term. The operating frameworkof the central bank has been modified,with the objective of doubling themoney supply in two years and aninflation target raised to 2% in anattempt to breathe life into growth andquell deflationary pressures. The fiscalstimulus will continue to boost activ-ity, with the government having prom-ised to invest JPY 10 trillion (or 2% ofGDP) in infrastructure. The “thirdarrow” of the Abe government’s pro-gram, supposed to increase long-termgrowth through structural reforms,was announced in early June 2013. Inparticular, the growth strategy pre-sented entails a “revitalization ofJapanese industry”, Japan’s reaffirma-tion as an innovative economic power,an improvement in the standard of liv-ing in the long term (annual increaseof +3% in per capita income during thenext ten years), the establishment of“strategic economic zones” and taxincentives to boost employmentamong women. The issue of labor mar-ket reform was postponed, and will beaddressed after the upper house elec-tions on July 21 2013. Fiscal policy willprobably reach a turning point mid-2014, with the government likely totake measures to regain control ofpublic finances. This looks likely toinvolve a hike in the VAT rate in April2014.

JapanAll or nothing

Towatch…

>Household income indicators.>Trends in business confidence surveys.>Public finance indicators.>The evolution of the exchange rate.>The stance of Japan’s main regional partnerswith regard to its monetary policy._

OverviewGrowth regained momentum in early 2013 (+1% q/q in Q1 compared with +0.3% q/q in Q4 2012) on the back of recovering householdconsumption (+0.9% q/q) and public spending (+0.4% q/q). The outlook for the short term is positive. The government’s guidelines infavour of an aggressive monetary policy and fiscal stimulus will boost activity. In 2013, the economy is expected to grow by +1.6%, drivenby public and private consumption. Investment will remain limited (+0.5%), reflecting investor wariness in the face of prospects thatcontinue to be tainted by uncertainty in light of the high risk overhanging the sustainability of the public debt and difficulty in anticipatingthe effects of the country’s monetary policy in the medium term (fears of creating a financial bubble in particular). Growth is forecast toslow in 2014 (+1.4%) due to a sharp slowdown in consumption following a hike in the VAT rate and the start of fiscal consolidation madenecessary by the excessive level of the public debt.

Country Risk Level

LOW

Trading partners

35






Country Exports Share of totalTotal 824 100%of which, eurozone 69 8.4%China 162 19.6%USA 128 15.5%Korea (South) 66 8.0%Hong Kong 43 5.2%Thailand 37 4.5%Country Imports Share of totalTotal 855 100%of which, eurozone 65 7.6%China 184 21.5%USA 76 8.9%Australia 57 6.6%Saudi Arabia 51 5.9%U.A.E. 43 5.0%



0

1

2

3

4

5

14121008060402009896949290

forecasts


-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

09 10 11 12 13 14

forecasts


Net exports

StocksGDP


Insolvenciesby sector in2012

Agriculture & prim. ind. 98 0.0% 0.8%Manuf. industry 1,790 -5.8% 14.8%Construction 3,002 -11.5% 24.8%Wholesaling 1,790 9.1% 14.8%Retailing 1,431 -3.9% 11.8%Transport & communic. 980 5.6% 8.1%Finance 58 7.4% 0.5%Real estate 367 -12.6% 3.0%Other services & Others 2,608 -7.3% 21.5%Total 12,124 -4.8% 100%

* Jan-Dec '11 to Jan-Dec '12Source: TSR


0

5,000

10,000

15,000

20,000

0.4

0.6

0.8

1.0

1.2

14121008060402009896949290

12,1

0011

,800

12,1

24



Sources: TSR, Euler Hermes forecasts






-40

-30

-20

-10

0

10

20

30

40

70

75

80

85

90

95

100

105

110

115

120


13121110090807060504030201009998

-10

-8

-6

-4

-2

0

2

4

6

8

20

25

30

35

40

45

50

55

13121110090807060504030201009998


GDP and componentsChange over the period, unless otherwise indicated: *contribution toGDPgrowth **JPYbn


forecasts

Economic forecasts

JAPAN share 2011 2012 2013 2014GDP 100% -0.5 1.9 1.6 1.4Consumer Spending 59% 0.5 2.3 1.5 0.7Public Spending 24% -0.1 4.1 2.8 0.1Investment 16% 3.5 2.2 0.5 1.1Construction 3% 4.7 4.0 10.1 -6.2Equipment 13% 3.3 1.9 -1.4 2.7

Stocks * -1% -0.5 0.0 -0.1 0.0Exports 16% -0.4 -0.1 3.0 7.4Impots 14% 5.9 5.5 2.9 3.1Net exports * 2% -0.8 -0.8 0.1 0.7Current account ** 9 5 4 6Current account (%of GDP) 2.0 1.1 0.8 1.1Employment -0.1 -0.3 0.4 0.1Unemployment rate 4.6 4.3 4.3 4.4Wages 0.1 -0.4 -0.2 0.4Inflation -0.3 0.0 0.1 1.6General gov. balance ** -45 -47 -56 -49General gov. Balance (% of GDP) -9.5 -9.9 -11.6 -10.0Public debt (%of GDP) 202 212 216 223Nominal GDP ** 471 476 482 495


36

Euler Hermes

Personal consumption growth willstrengthenmodestly. Q1 2013 con-sumer spending growth remainedbuoyant, contributing more to GDPgrowth than in Q4 2012 and more thaninvestment. Retail sales growth(nominal) in Jan-May, however, wasslower than the 2012 average. Althoughlikely to pick up (2.1% y/y May) inflationshould still be below 3% at year-end,which should also provide support.

Investment growth slowed in Q1 2013,though in part this was an inventoryswing. Investment in fixed assetsgrowth in Jan-May was +20.4% y/y.Overall, 2013-14 investment growth islikely to be slightly lower than 2012.Industrial production in Jan-May(+9.4% y/y) was also tapering offslightly through the period. Creditexpansion, however, has been strongsince H2 2012, though may be peaking.Property sales have recovered from2012 lows, but inventories remain high.The sector remains a downside risk.Insolvencies are expected to rise +4%in 2013 and +3% in 2014.

Monthly trade data are erratic, butexport growth in the first fivemonthsexceeds that of imports. Commodityimports remain relatively weak. In vol-ume terms, both exports and imports

of goods and services growth shouldstrengthen slightly in 2013 and 2014and the net export contribution togrowth is likely to be positive, butexternal demand remains a key risk.There has been significant exchangerate appreciation against the USD andtrade weighted over several monthsbut there may now be a pause.

The new leadership seems to bereform-minded with a commitment tore-balancing the economy away frominvestment towards private consump-tion, necessary to ensure sustainedgrowth. Investment has increased to46% of GDP (emerging economies aver-age 30%). There remains scope for fur-ther stimulus should growth falter toomuch, but this will be in the context ofan official growth target of +7.5%, asshort term stimulus tends to boostunwanted investment._DA

ChinaRegroup, rebalance


0

2,000

4,000

6,000

8,000

10,000

0.00

0.05

0.10

0.15

0.20

14121008060402009896949290

2,80

02,

730

2,62

6



Sources: China Court, Sinotrust, Euler Hermes forecasts

Country Risk Level

LOW

700 car

OverviewGrowth (+7.9% y/y) had begun to turn up in Q4 2012, but Q1 2013 growth wasbelow expectations at +7.7% and indications are of another moderate pace in Q2.With policy under the new leadership more focused on medium-term re-balancing, there will be caution over further stimulus. External demand shouldstabilize and gradually improve and consumer spending should remainsupportive, but without a boost to investment 2013 annual growth is likely to be+7.7%, with risks largely to the downside, and +7.9% in 2014. Two key risks arelower-than-expected global demand growth and the real estate sector.

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **CNYbn




Country Exports Share of totalTotal 1,901 100%of which, eurozone 260 13.7%USA 325 17.1%Hong Kong 268 14.1%Japan 147 7.7%Korea (South) 83 4.4%Germany 76 4.0%Country Imports Share of totalTotal 1,741 100%of which, eurozone 174 10.0%Japan 194 11.2%Korea (South) 162 9.3%USA 119 6.8%Germany 93 5.3%Australia 81 4.6%

Trading partners

forecasts

Economic forecasts

CHINA 2011 2012 2013 2014GDP 9.2 7.8 7.7 7.9Consumption 9.9 8.2 8.4 8.7Public consumption 5.9 6.9 7.0 7.0Investment 9.2 7.5 7.2 7.1Exports 13.0 4.2 5.1 8.5Imports 11.9 3.4 5.4 7.5Net exports * 1.0 0.8 0.5 0.7Current account ** 1303 1452 1581 1874Current account (% of GDP) 2.8 2.8 2.7 2.9Inflation 5.4 2.7 2.5 3.0General government balance ** -614 -1142 -1208 -1171General government (% of GDP) -1.3 -2.2 -2.0 -1.8Public debt (% of GDP) 25.5 22.8 21.0 20.0Nominal GDP ** 47,310 51,932 57,54365,074

37


Household expenditure should receivea double boost in FY2013/14. Firstly,monetary policy is easing, with theinterest rate cut at the beginning of Maythe third to date in 2013. Secondly,meteorological forecasts suggest agood monsoon this year, which shouldboost rural incomes and spendingpower in 2013 and 2014. However, thecentral bank is likely to implement fur-ther interest rate cuts only if there areclear signals that inflationary pressuresare subsiding. Wholesale prices are themain official inflation gauge and theWPI fell to 5.96% y/y in March, which isjust within the RBI’s target range for thefirst time in over three years.

Government spending is constrainedby large fiscal deficits. A combinationof state and federal budgets gives a fis-cal deficit of around -8% of GDP inFY2012/13 and perhaps nearer -10% inFY2013/14. There is a commitment toreduce fiscal deficits and overall publicdebt (32% of GDP) but parliamentaryelections in 2014 may limit expendi-ture cuts before then and the govern-ment sector will remain a positive andkey contributor to annual growth.

The boost to investment from reformstowards the end of last year has beenslowmaterialising.However, the

reforms (including partial opening upof the retail and aviation sectors) andinterest rate cuts in H1 2013 shouldnow boost growth in investment.However, further reforms are requiredand, in this respect, investors are likelyto be encouraged by the pro-businessagenda of the opposition BJP party,which is likely to do well in next year’selections.

The external sector is a drag on overallgrowth. Continuing headwinds remainweakness in the eurozone (over 13% ofIndia’s exports) and a large import bill(oil accounts for 30%). The trade deficitin April was -USD17.8 billion (partlyalso because of high gold imports).Shortfalls in merchandise trade feedinto deficits on the current account(around -4.3% of GDP in 2013 and -3.7%in 2014)._AA

IndiaNo Indian summer

Country Risk Level

LOWOverviewGDP growth is forecast at +6% in FY2013/14 and +7% in FY2014/15, following +5%in FY2012/13, which was the lowest in a decade and compared with an annualaverage +7.3% in 2000-11. In January-March (Q4 FY2012/13), growth was +4.8%y/y (+4.7% y/y in Q3), with agriculture (+1.4% y/y) and manufacturing (+2.6% y/y)remaining sluggish and mining contracting (-3.1% y/y) but constructionincreasing by +4.4% y/y (+2.9% y/y in Q3). The bounce back will be driven by theeconomic reforms of last September, expectation of a good monsoon in 2013(boosting rural demand) and scope for further monetary easing (if inflation iscontained).

Changeover the period, unless otherwise indicated:*contribution toGDPgrowth **INRbn




Country Exports Share of totalTotal 307 100%of which, eurozone 42 13.6%U.A.E. 39 12.7%USA 33 10.8%China 19 6.2%Singapore 16 5.3%Hong Kong 13 4.1%Country Imports Share of totalTotal 463 100%of which, eurozone 42 9%China 55 12%U.A.E. 36 8%Switzerland 32 7%Saudi Arabia 28 6%USA 23 5%

Trading partners

forecasts

Economic forecasts

INDIA Share 2011 2012 2013 2014GDP 100% 6.5 5.0 6.0 7.0Consumer Spending 58% 5.5 6.3 6.2 7.0Public Spending 12% 5.5 5.7 5.3 6.5Investment 33% 8.3 2.5 6.0 7.5Stocks * 1% -0.1 0.3 0.1 0.2Exports 21% 15.3 1.3 7.6 12.4Imports 26% 21.5 6.4 4.7 11.5Net exports * -4% 0.0 -0.5 -0.3 -0.5Current account ** -3645 -5057 -4884 -4855Current account (% of GDP) -4.1 -5.0 -4.3 -3.7Unemployment rate 8.4 8.8 8.6 8.3Wages 7.6 7.3 6.5 5.9General gov. balance -7300 -8100-11100 -11050General gov. balance (% of GDP) -8.1 -7.9 -9.7 -8.5Public debt (% of GDP) 33 32 32 31Nominal GDP 89,749102,032114,619129,783

38


One countrywith a changed country risk level(CRL) in the 2nd quarter – in a better direction

Kazakhstan

1

Changeas of June 19, 2013

2 Medium risk

3 Sensitive risk4 High risk

Low risk

Source: Euler Hermes, as of June 19, 2013

Latest changesin country risks

Kazakhstan to Sensitive from High.Since 2010, Kazakhstan has been emerging from the domestic financial crisis thatculminated in a systemic banking crisis in 2009 in the wake of the global economiccrisis. Supported by the recovery of global commodity prices, the economy hasresumed growth and external liquidity indicators have improved, reflected in cur-rent account surpluses and adequate FX reserves. Banking sector restructuring isnot complete yet, but credit growth has resumed to adequate levels. Inflation is inthe 5-8% range and public finances are favourable._DA

39


Q1GDPgrowthwas generally lacklustre andthe regional GDP growth forecast has beenrevised downwards to+3% in 2013 and+3.5% in 2014. Brazil’s upturn is likely to bemore subdued than previously expected, butwill still be themain driver of the region’shigher growth in 2013. Uncertainties for the region are growing,however, as commodity demand fromChina has slowed (alsolowering prices) and the problems of short term capital flow volatilitycontinue to create dilemmas for policymakers (inflation and exchangerates). Nonetheless,most of themajor economies arewell placed to dealwith a growth slowdown as polices are generally sound. Those economieswhere polices have beenmost interventionist, however, such asArgentina andVenezuelawill struggle.Brazil’s recovery is proving more sluggish than expected andgrowth is unlikely to exceed +2.7% in 2013, picking up to +3.3% in2014. Mexico will experience slower, but still relatively robust growth in2013 (+3%) though much will depend on the pace of US activity, by farthe largest export market. Chile, Colombia and Peru, all commodityproducing economies, will feel the drag of weaker commodity marketsand potentially weaker exchange rates, which could be exacerbated byvolatile capital flows. Nonetheless, all five economies remain wellplaced to withstand the headwinds from the global economy, thoughthese will place a premium on the continuation of the broadly soundpolicy approach in these countries. Panama and Uruguay should alsoremain resilient in 2013. In Paraguay, presidential elections held inApril have paved the way for normalisation of international relations.Countries pursuing more heavily interventionist policies are more atrisk. In Argentina, after slowing abruptly in 2012, growth is unlikely topick up strongly in 2013-14 as import constraints to maintain FXreserve levels and uncertainty generated by legal rulings on thepayment of “hold-outs” from themain debt exchange in 2010 willkeep growth low and maintaininflationary pressures. InVenezuela the new presidentmust deal with high inflation andlow growth, as well asconsolidate his own position,though he appears set on broadcontinuity with his predecessor’spolicies._DA

Americas

United States

Canada

Mexico

GuatemalaEl Salvador

Costa Rica

Suriname

Dominican RepublicJamaica

HaitiCuba

BelizeHonduras

Nicaragua

Panama

Brazil

Argentina

Colombia

Peru

Bolivia

Venezuela Guyana

French Guyana

Paraguay

Ecuador

Uruguay

Chile

Trinidad andTobago

Porto RicoBarbados

GuadeloupeMartinique

584 5,707 9,776198 2,425 12,225116 1,163 10,01241 475 11,54748 365 7,68430 338 11,30717 268 15,39830 200 6,73615 71 4,76510 59 5,80715 50 3,3233 50 14,6595 45 9,3634 35 9,605

10 27 2,6107 26 3,9046 24 3,8291 24 17,6088 18 2,2983 15 5,5270 8 23,483

10 8 8116 8 1,3150 5 16,512

lowlowhighlowhighlowlowhigh

sensitivelowlowlowlowhighlow

mediumsensitivesensitivehighlowhighhigh

sensitive

* as of June 19, 2013 (seemethodology page 43) **(1) 2012,million**(2) 2012, USDbillion**(3) 2012, USDppa Sources: IMF, Euler Hermes

lowlow

Country Risk Level*

North AmericaUnited StatesCanada

Latin AmericaBrazilMexicoArgentinaColombiaVenezuelaChilePeruEcuadorDominican RepublicGuatemalaUruguayCosta RicaPanamaBoliviaParaguayEl SalvadorTrinidad and TobagoHondurasJamaicaBahamasHaitiNicaraguaBarbados

Population**(1) GDP**()2) GDP per capita**(3)

349 17,424 4,986315 15,653 49,75935 1,770 50,825

GDPgrowth in 2013 is forecast at +4.5% for Africa and+2.5%for theMiddle East, with improvements to+4.8% and+3.8% in2014, respectively. Overall growth rates in both sub-regions arehigher if some key economies are excluded (growth in South Africa andIran act as a drag on their respective regions) andAfrica and theMiddle Eastwill continue to register someof theworld’s fastest-growing economies in2013-14.Q1 GDP growth in South Africa was the lowest since Q2 2009. Someheadwinds (including weak external demand, output disruptionsthrough strike action and high labor costs) appear set to continue and EHexpects GDP growth in 2013 of +2.5% (+3.5% in 2014). Elsewhere, businessconditions are favourable in post-election Kenya, partly reflectingsignificant potential for oil and gas (mainly offshore) to drive expansionin East African markets. Nigeria continues to register strongrates of growth, despiteheightened security concerns inthe north-east, and EH expectsannual GDP growth of +6.5% in2013 and 2014.In MENA, the divergence ingrowth between oil and non-oileconomies is set to continue.The GCC countries continue torecycle financial resources(combined current accountsurplus of USD389 billion andnet foreign assets of USD1.8trillion in 2012) in the widerregion but increasingly they areusing them to promote domesticgrowth, partly through spendingon infrastructure projects andsocial benefit packages.Meanwhile, political transitionsin North Africa continue to befragile. Tunisia has an IMFsupport facility in place butEgypt’s negotiations with theFund remain protracted._AA

40


Africa andMiddle East Algeria

Tanzania

MauritaniaMali Niger

Syria

Iraq

Libya Egypt

SudanChad

Guinea

EthiopieNigeria

Central AfricanRep.

DemocraticRepublicof Congo

KenyaSomalia

Namibia

Botswana

SouthAfrica

Côted'Ivoire

Iran

Angola

Zambia

Cameroon

Gabon

Mozambique

Zimbabwe

Morocco

SaudiArabia

Yemen

Jordan

Oman

Uganda

Burkina Faso

Senegal

Tunisia

GambiaGuinea Bissau

Sierra Leone

LiberiaGhana

TogoBenin

Equatorial Guinea

Congo

Erithrea

Qatar

U.A.E

Kuwait

LebanonIsrael

Malawi

Lesotho

Swaziland

BurundiRwanda

Djibouti

Cap Vert

Sao Tome and Principe

Seychelles

Mauritius

Ile de la Réunion

Madagascar

SouthSudan

Morocco

Country Risk Level*North AfricaEgyptAlgeriaMoroccoLibyaTunisia

Middle EastSaudi ArabiaIranUnited Arab EmiratesIsraelQatarKuwaitIraqOmanSyriaLebanonYemenJordanBahrain

220 2515 11,42129 657 22,89076 484 6,3988 362 44,6488 247 32,0722 185 101,9163 175 60,392

34 131 3,8743 80 27,539

21 60 2,8394 42 9,732

26 36 1,4226 31 4,8551 27 19,499

170 689 4,06184 255 3,03736 207 5,66133 97 2,9816 85 14,661

11 45 4,176


highsensitivemediumhigh

sensitive

lowhighlowlowlowlowhighlowhighhighhighlow

sensitive

Sub-Saharan AfricaSouth AfricaNigeriaAngolaSudanEthiopiaKenyaGhanaTanzaniaCameroonCôte d'IvoireZambiaEquatorial GuineaUgandaDemocratic Republic of CongoBotswanaGabonMozambiqueSenegalCongo (People's Republic Of)NamibiaMauritiusZimbabweBurkina FasoMadagascarChadMaliBeninRwandaNigerGuinea (Rep Of)MalawiMauritaniaSwazilandTogoEritrea

lowhigh

sensitivehighhighhighlow

sensitivesensitivehigh

sensitivehigh

sensitivehighlow

sensitivesensitivesensitivehighlowlowhigh

sensitivehighhighhigh

sensitivehighhighhighhighhigh

sensitivehighhigh

837 1307 1,56150 391 7,784

154 273 1,77118 115 6,40546 52 1,12887 42 48442 42 98726 40 1,57147 28 59218 25 1,34020 24 1,20614 21 1,4941 21 28,339

36 20 57569 18 2552 18 8,5672 17 10,889

24 15 59813 14 1,0654 14 3,2782 12 5,1371 12 9,081

13 11 83017 10 58822 10 45812 10 82216 10 5909 8 807

11 7 61717 7 39410 6 55216 4 2834 4 1,1301 4 2,9926 4 5776 3 557


41


RegionalGDPgrowth inemergingEurope is forecast toremain sluggish at+2.4% in2013. External demandwill continue tobeweakas a result of theongoingeurozone crisis anddomestic demandwill failto regainmomentumowing to continuedfiscal austerity and still tight creditconditions.Growth shouldpickup to about+3.1%in2014, though itwill remain clearly below thelong-termaverage (+4.4% in2002-11).Economic activity in the region as a wholeremained lethargic in Q1 2013,increasing by just about +1% y/y,the same pace as in Q4 2012.Early indicators signal ongoingweakness in Q2 2013. Hungary,Slovenia, Croatia and Ukrainecontinued to contract in y/y termsin Q1 and will remain highlyvulnerable to financial stresses. Romania and Serbia returned tosolid growth of +2% y/y in Q1 but are also high risk due to weakeconomic fundamentals. Slovenia remains a candidate for anEU/IMF bailout as the recessionwill deepen in 2013 and thebanking crisis is still unresolved.The Czech Republic facesincreased cyclical risk, reflected incontinued recession and risinginsolvencies, but medium-termrisk remains low thanks toprudent policies and solidfundamentals. The SlovakRepublic and Poland continued tolose momentum in Q1 owing todeclining domestic demand butsolid net exports should keep theeconomies growing at about +1.2%in 2013. Russia disappointed againwith lower than expected Q1growth (+1.6% y/y) and weakeningPMIs in Q2, such that full year 2013growth has been reviseddownwards to +3.2%. In Turkey, Q1growth of +3% y/y supports theprojected acceleration of full yeargrowth to about +4% in 2013 afterthe soft landing in 2012 (+2.2%),but recent mass anti-governmentprotests are a reminder of societalrisks that may have adverse effectson the country's external financingconditions._MS

Sweden

Norway

Iceland

Finland

Belarus

Poland

UkraineGermany

France

Switzerland Austria

Slovenia

Bulgaria

LithuaniaLatvia

Turkey

GeorgiaArmenia

Romania

Serbia

NorvègeBosnia&Herzegovina

Netherlands

Belgium

UnitedKingdom

Moldavia

CzechRepublic

Slovakia

Macedonia

DenmarkIreland

Spain

PortugalItaly

Gibraltar (UK)

Vatican

Malta

Greece

Cyprus

Azerbaijan

Russia

Estonia

Montenegro

Hungary

Croatia

Russia

Lux.

Albania

Europes


Country Risk Level*Western EuropeGermanyFranceUnited KingdomItalySpainNetherlandsSwitzerlandSwedenNorwayBelgiumAustriaDenmarkGreeceFinlandPortugalIrelandLuxembourgIceland

Central and Eastern EuropeRussiaTurkeyPolandCzech RepublicUkraineRomaniaHungarySlovak RepublicAzerbaijanBelarusCroatiaBulgariaSloveniaLithuaniaSerbiaLatviaCyprusEstoniaBosnia and HerzegovinaGeorgiaAlbaniaArmeniaMacedoniaMaltaMoldovaMontenegro


lowlowlow

sensitivesensitivemedium

lowlowlow

mediumlowlowhighlow

sensitivesensitive

lowsensitive

sensitivesensitive

lowmediumhighhighhighlow

sensitivehighhigh

mediumsensitivesensitivehigh

sensitivehighlowhighhighhighhighhigh

mediumhighhigh

, 415 16,279 39,26682 3,367 41,09964 2,580 40,56563 2,434 38,48261 1,980 32,48648 1,340 27,98117 770 46,0948 623 78,0129 520 54,7905 500 100,772

11 477 44,2928 391 46,2416 309 55,283

11 255 22,3295 247 45,754

11 211 19,6855 205 44,7011 55 104,0600 14 41,786

417 4,490 10,779143 1,954 13,69075 783 10,51038 470 12,27511 194 18,41345 180 4,00921 171 8,01410 129 12,9505 91 16,8559 71 7,541

10 58 6,1104 57 13,1047 51 6,8682 45 22,2653 41 12,5187 37 5,1482 27 12,1671 22 25,0231 21 15,9864 17 4,3214 16 3,6713 12 3,8503 11 3,3942 10 4,9890 8 20,0514 8 2,1321 4 6,915

Growth of the emerging Asia-Pacific economieswill beunchanged in 2013 at +6.2%, led by continuedmoderategrowth in China and India aftermarked slowdowns in botheconomies in 2012, followed by+6.7% in 2014. The region facesheadwinds fromexport demand growth in other regions,notably Europe, and intra-region frommoremoderate growthin China. Earlier strong credit growthwill limit the scope forfurther policy loosening inmuch of the region, thoughmonetary growth iseasing and some countries have begun to cut interest rates. Overall,mostmajor economies should remain resilient in 2013-14.China’s growth was disappointing in Q1 and the more moderate pace isset to continue (+7.7% 2013 and +7.9% in 2014) as the new leadershipfocuses on re-balancing and medium-term growth potential slows.Hong Kong and Taiwan both felt the headwinds from global demand inQ1 and growth in 2013 in both will be a moderate +2.8%. In South Korea,growth was a broad-based +1.5% y/y in Q1 and should pick up to +2.5%for full year 2013. Tensions on the Korean peninsula appear to be easing.In India, GDP increased by +4.8% y/y in Q4 FY2012/13 (January-March),bringing growth for FY2012/13 to +5%, the lowest in a decade. Theoutlook is better, with economic reforms implemented lastSeptember taking effect, forecastsof a good monsoon in 2013 (aboost to rural incomes anddemand) and scope for furthermonetary easing (if wholesaleprices are contained). EH expectsGDP growth of +6% in 2013 and+7% in 2014, subject to enactmentof further reforms and successfulelections next year. Growth in theASEAN sub-region was robust inQ1, thanks to resilient domesticdemand, and should reach about+5% in both 2013 and 2014. ThePhilippines posted the fastest Q1GDP growth (+7.8%) of all majorAsia-Pacific economies, in partthanks to large infrastructureprojects. Growth in the highlyexternal trade-dependenteconomy of Singapore was just+0.2% y/y in Q1 and will remainsubdued in 2013._DA/MS/AA

Australia

Tasmania

New Zealand

NewCaledonia (F)

VanuatuVanuatu

MalaysiaSingapore

Brunei

Indonesia

Thailand

Cambodia

Laos

Vietnam

Philippines

Sri Lanka

MyanmarIndia Bangladesh

BhutanNepalPakistan

Afghanistan

Turkmenistan

Kazakhstan

Uzbekistan Kyrghyzstan

Tajikistan

Mongolia

China

Hong Kong

Taiwan

NorthKorea

South Korea

Japan

Indonesia

PapuaNew Guinea

Indonesia

SolomonIslands

Vanuatu

Tuvalu

Micronesia

Guam (US) MarshallIslands

Nauru

Fiji

Kiribati

Maldives Palau (US)

42


Asia-Pacific

3,795 15,157 3,9941,354 8,250 6,0931,258 1,947 1,547

49 1,151 23,495245 895 3,65623 466 20,13470 377 5,39429 307 10,4765 268 50,9757 258 35,844

96 241 2,495180 231 1,28116 201 12,24890 138 1,534

152 119 77921 60 2,81662 54 87828 52 1,8395 33 6,474

33 20 59431 19 6260 17 40,815

14 14 9843 10 3,4896 9 1,4547 7 1,0265 6 1,1371 4 3,5500 2 6,0991 2 2,267

37 1,731 47,26123 1,542 67,2844 167 37,4167 15 2,1471 4 4,5051 1 1,8340 1 3,0240 1 3,8530 0 4,5380 0 1,695

128 5,984 46,915


Population**(1) GDP**()2) GDP per capita**(3)Country Risk Level*low

OceaniaAustraliaNew ZealandPapua New GuineaFijiSolomon IslandsVanuatuSamoaTongaKiribati

lowlow

sensitivehighhigh

sensitivesensitivehigh

sensitive

lowlowlow

sensitivelowlowlowlowlow

sensitivehigh

sensitivehighhigh

sensitivehighhighhighhighhighlowhighhighhighhighhighhighhigh

sensitive

South, Central and East AsiaChinaIndiaKorea (South)IndonesiaTaiwanThailandMalaysiaSingaporeHong KongPhilippinesPakistanKazakhstanVietnamBangladeshSri LankaMyanmar (Burma)UzbekistanTurkmenistanAfghanistanNepalBruneiCambodiaMongoliaLaosTajikistanKyrgyzstanEast TimorMaldivesBhutan

Japan

43


The evaluation of the overall level of country risk is based on a central element, the

country grade, a measure of transfer and convertibility risk and of the

quality of the business climate,which is determined by a combination of three

analyses:

(i) the Macroeconomic Rating (ME) based notably on analysis of: the structure of the

economy, budgetary andmonetary policy, indebtedness, the external balance, along

with the stability of the banking system and other factors.

(ii) the Structural Business Environment Rating (SBE) based on perceptions of the

regulatory and legal framework, control of corruption and relative ease of doing

business.

(iii) the Political Risk Rating (P) based notably on analysis of: themechanisms for trans-

ferring of power and the processes for succession, the concentration of power, the

effectiveness of policy, the independence of institutions, social cohesion, internatio-

nal relations, etc.

The first two elements (the ME Rating and the SBE Rating) are the two components

used to calculated the Economic Risk Rating (E) assigned to each country. This latter

is, in turn, combined with the Political Risk Rating (P) to make our Country Grade, on

a six-level scale running from AA to D, in which AA is the highest level of country

grade and D is the lowest.

This country grade is then combined, for the 70 biggest economies, with the short

term alerts indicator, this latter being a combinedmeasure of a country’s vulnerability

in the short term to financing risk (Financial Flows Indicator, or FFI) and cyclical risk

(Cyclical Risk Indicator, or CRI).

The four levels of the overall country risk are the result of grouping into four classes

of the different possible combinations of the country grade and, as the case may be,

of the short term alerts Indicator, on a scale of low, medium, sensitive and high._

Country Risk LevelsMethodology

Annex 1

The concept of business insolvency varies from one country to another,

making it hard to give international comparisons. The disparities between

countries are for twomain reasons. First, official insolvency procedures are not of

equal importance everywhere. In some countries, amicable arrangements

predominate (for example, in Spain and Italy), and the figures for company

insolvencies are quite low, thus understating the real picture for business insolvencies.

Second, in some cases, individual entrepreneurs are included in the figures for

business insolvencies. In other cases, however, they are included in the figures for

personal bankruptcies, with no distinguishing between purely personal bankruptcies

and sole trader bankruptcies. In the latter cases, the number of business insolvencies is

significantly understated. In theUS for example, the number of businesses used

represents solely companies, and does not take account of individual entrepreneurs,

estimated to total around 17million. However, formost countries the number of

businesses and the number of insolvencies include the figures for individual

entrepreneurs. Note also that the number of businesses does not directly depend on

the size of a country: Japan, for example, hasmore businesses than theUS, although it

has less than half its population andGDP.

To overcome the heterogeneous nature of national statistics and circum-

stances, we employ the change in insolvencies over time rather than their

absolute numbers. For each country, we have calculated an insolvency index,

using a basis of 2000=100. We have then constructed our Global Insolvency Index

(GII), which is the weighted sum of the national indices. Each country is weighted

according to its share of the total GDP (at current exchange rates) of the countries

included in our study, which accounted for around 85% of world GDP at current

exchange rates for 2011._

InsolvencyMethodology

Annex 2

44


World tradeAnnex 3

Export destination in %


Cumulative 12months to the end of December 2011 !!Using this table : Canada (row 1) send 73.7 % of its exports to the USA (column 2)

AMERICAS ASIA EUROPE

Cana

da

Unite

d St

ateS

Mex

ico

Arge

ntin

a

Braz

il

Japa

n

Chin

a

Indi

a

Sout

h Ko

rea

Germ

any

Fran

ce

Italy

Spai

n

Neth

erla

nds

Belg

ium

Gree

ce

Aust

ria

Finl

and

Irela

nd

Luxe

mbo

urg

Port

ugal

Unite

d Ki

ngdo

m

Swed

en

Norw

ay

Denm

ark

Switz

erla

nd

Russ

ia

Euro

zone

Euro

pe -

27

Rest

of w

orld

Tota

l exp

orts

Canada 73.7 1.2 0.1 0.6 2.4 3.7 0.6 1.1 0.9 0.7 0.4 0.2 1.1 0.5 0.0 0.1 0.2 0.1 0.0 0.1 4.2 0.1 0.6 0.1 0.3 0.3 4.3 8.9 4.3 452.5

USA 19.0 13.3 0.7 2.9 4.5 7.0 1.5 2.9 3.3 1.9 1.1 0.7 2.9 2.0 0.1 0.2 0.2 0.5 0.1 0.1 3.8 0.4 0.2 0.2 1.7 0.6 13.2 18.2 17.1 1,480.7

Mexico 3.1 78.6 0.6 1.4 0.6 1.7 0.5 0.4 1.2 0.2 0.4 1.4 0.6 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.6 0.0 0.0 0.0 0.3 0.1 4.1 5.4 7.0 349.7

Argentina 3.0 5.5 1.4 21.6 1.3 7.3 1.3 1.2 2.8 0.8 2.5 3.3 3.3 0.4 0.2 0.0 0.1 0.2 0.0 0.2 1.1 0.1 0.1 0.7 0.1 1.2 13.9 16.8 35.9 78.2

Brazil 1.2 10.1 1.5 8.9 3.7 17.3 1.3 1.8 3.5 1.7 2.1 1.8 5.3 1.5 0.1 0.2 0.3 0.1 0.0 0.8 2.0 0.2 0.4 0.2 0.6 1.6 17.7 20.7 26.3 2,56.0

Japan 1.1 15.5 1.2 0.1 0.8 19.6 1.3 8.0 2.8 1.0 0.6 0.4 2.2 0.8 0.0 0.1 0.1 0.1 0.0 0.1 2.0 0.2 0.2 0.1 1.1 1.4 8.4 11.6 19.9 824.4

China 1.3 17.1 1.3 0.4 1.7 7.7 2.7 4.4 4.0 1.6 1.8 1.0 3.1 1.0 0.2 0.1 0.3 0.1 0.1 0.1 2.3 0.3 0.2 0.3 0.2 2.0 13.7 18.7 21.0 1,901.5

India 0.6 10.8 0.4 0.1 1.7 1.8 6.2 1.6 2.7 1.6 1.7 1.0 3.2 2.5 0.3 0.2 0.1 0.1 0.0 0.2 2.9 0.3 0.1 0.3 0.3 0.6 13.6 18.0 30.3 306.7

Korea (South) 0.9 10.0 1.7 0.2 2.1 7.1 23.9 2.3 1.7 1.0 0.7 0.3 0.8 0.4 0.2 0.1 0.1 0.1 0.0 0.1 1.0 0.2 0.1 0.1 0.2 1.8 6.0 10.0 25.0 562.5

Germany 0.5 5.6 0.7 0.2 1.0 1.1 5.1 1.0 1.0 10.1 6.2 3.5 6.9 4.7 0.5 5.8 0.8 0.4 0.6 0.7 6.6 2.2 0.7 1.5 4.7 3.1 40.7 62.7 11.0 1,391.9

France 0.7 5.0 0.5 0.3 0.9 1.5 3.1 0.7 1.0 16.7 8.3 7.4 4.3 7.4 0.7 0.9 0.4 0.5 0.5 1.0 6.7 1.4 0.4 0.6 3.0 1.5 48.4 62.0 14.8 584.4

Italy 0.7 5.9 0.9 0.3 1.3 1.2 2.7 1.0 0.8 13.3 11.8 5.4 2.5 2.6 1.3 2.4 0.4 0.3 0.1 0.9 4.7 1.1 0.4 0.6 5.4 2.5 42.0 49.7 17.4 515.4

Spain 0.5 3.4 1.3 0.4 1.1 0.8 1.5 0.6 0.4 10.6 17.8 8.3 3.0 2.9 0.7 0.9 0.4 0.3 0.1 8.3 6.7 1.0 0.5 0.6 1.9 1.1 53.7 57.5 17.0 300.1

Netherlands 0.3 3.3 0.3 0.1 0.5 0.6 1.4 0.4 0.8 26.2 9.3 4.8 3.1 14.1 0.5 1.4 1.0 0.7 0.4 0.7 7.7 1.9 0.8 1.3 1.2 1.5 62.4 68.2 8.5 649.4

Belgium 0.5 4.5 0.3 0.1 0.6 0.9 1.7 2.3 0.3 18.7 17.0 4.6 2.7 12.5 0.5 1.0 0.6 0.5 1.9 0.5 7.2 1.5 0.5 0.7 1.5 1.3 60.8 74.4 8.7 464.5

Greece 0.7 5.2 0.3 0.1 0.1 0.1 1.2 0.2 0.3 7.9 2.9 9.5 2.1 2.0 1.3 0.9 0.7 0.1 0.1 0.6 4.0 0.6 0.1 0.5 0.6 1.5 28.6 50.8 34.4 31.1

Austria 0.4 4.0 0.3 0.1 0.7 0.8 2.2 0.7 0.7 32.3 4.2 7.9 1.7 1.6 1.4 0.4 0.4 0.2 0.1 0.3 3.0 1.2 0.3 0.5 4.5 2.8 52.3 72.8 11.2 171.8

Finland 1.6 5.1 0.3 0.2 0.9 1.7 4.8 1.1 1.0 10.2 3.2 2.4 1.8 7.0 2.9 0.3 0.8 0.2 0.0 0.3 5.3 12.1 2.8 2.1 1.3 9.4 29.1 56.7 17.5 76.9

Ireland 0.6 22.3 0.6 0.1 0.3 1.9 1.7 0.2 0.3 7.0 5.7 3.4 3.6 3.5 15.5 0.3 0.3 0.3 0.1 0.5 16.2 1.0 0.4 0.5 4.2 0.5 40.5 60.3 3.8 122.0

Luxembourg 0.5 2.5 0.4 0.1 0.2 0.3 1.1 0.3 0.1 22.2 15.6 5.4 1.8 4.1 13.2 0.5 1.8 0.5 0.6 0.2 7.3 2.2 0.4 0.6 4.3 1.4 66.6 80.4 5.5 21.7

Portugal 0.5 3.3 1.1 0.1 1.3 0.4 0.9 0.2 0.1 13.6 12.1 3.7 25.1 4.0 3.2 0.3 0.6 0.6 0.3 0.1 5.1 1.0 0.2 0.6 0.9 0.3 68.7 73.5 11.2 58.5

UK 1.5 9.9 0.3 0.1 0.5 1.3 2.1 1.7 0.7 10.9 7.4 3.4 3.3 7.9 5.4 0.4 0.6 0.6 6.0 0.1 0.6 2.1 1.0 1.0 7.1 0.9 46.4 53.2 10.7 463.9

Sweden 0.7 5.5 0.5 0.1 1.1 1.1 3.1 1.1 0.6 10.5 4.9 2.7 2.0 5.2 4.8 0.3 1.0 6.5 0.5 0.1 0.5 7.4 9.3 6.5 1.0 1.8 38.9 59.2 1.7 175.9

Norway 1.6 5.6 0.1 0.0 0.5 1.2 1.8 0.3 1.0 11.1 7.2 2.3 1.6 11.6 2.7 0.1 0.6 1.6 1.1 0.0 0.5 27.2 6.5 3.3 0.8 0.9 40.4 80.9 0.9 158.7

Denmark 0.8 5.5 0.3 0.2 0.7 1.7 2.5 0.5 0.6 17.0 4.4 3.0 2.5 4.9 1.5 0.6 0.7 2.5 0.9 0.1 0.4 9.9 13.2 5.7 0.9 1.8 38.5 67.8 7.6 109.2

Switzerland 1.3 10.3 0.6 0.2 1.1 3.2 4.3 1.4 1.1 20.2 7.1 7.8 2.8 2.5 2.0 0.5 3.2 0.4 0.4 0.2 0.4 4.8 0.8 0.4 0.5 1.5 47.7 56.9 8.6 234.7

Russia 0.1 3.2 0.1 0.2 0.4 2.9 6.5 0.7 2.7 4.6 2.2 5.6 1.2 12.3 0.9 0.7 0.1 2.4 0.0 0.0 0.0 2.1 1.0 0.2 0.4 1.8 30.0 45.6 43.4 495.9

Eurozone 0.5 5.3 0.6 0.2 0.9 1.0 3.1 0.9 0.8 12.4 9.6 5.5 4.0 5.0 5.7 0.6 2.7 0.7 0.4 0.5 1.3 6.6 1.8 0.6 1.0 3.3 2.2 48.8 63.2 12.8 4,422.6

EU (27) 0.6 5.2 0.5 0.2 0.8 1.0 2.7 0.9 0.7 13.7 8.7 5.2 3.7 5.0 5.1 0.6 2.5 0.9 0.9 0.4 1.0 6.0 2.0 1.0 1.2 3.2 2.3 48.2 66.5 12.5 5,850.7

Rest of World 2.3 20.8 2.0 0.3 1.6 9.5 20.1 5.7 5.0 4.3 1.7 2.2 1.9 1.5 1.6 0.3 0.6 0.1 0.1 0.0 0.2 2.3 0.6 0.3 0.3 -0.6 1.5 14.7 18.7 54.3 5272.9

Total of imports 430 1,968 332 57 200 694 1,394 351 425 1043 598 458 324 513 391 63 157 68 60 25 75 539 147 77 83 176 217 3,804 5,168 4,098 17,831.7

(bds $)

45


Already issued:

no. 1179 >Global Sectors ReviewLooking for growthwhere it can be found

no. 1180 >Business insolvency in France (only available in French)The overall decrease in French insolvencies hides several weaknesses

no. 1181 >Macroeconomic, Risk and Insolvency OutlookA fog cannot be dispelled by a fan

no. 1182 >Special ReportPayment periods in Europe: wide gaps

no. 1183-1184 >Macroeconomic, Risk and Insolvency OutlookToomuch timewasted saving time

no. 1185 >Global Sector OutlookEcono.mic sectors put to the test

no. 1186 >Macroeconomic, Risk and Insolvency OutlookIn 2013,we take the same and start again

no. 1187 >Special ReportThe Reindustrialization of theUnited States

no. 1188 >Special ReportTransport: a two-speedworld

no. 1189-1190 >Macroeconomic, Risk and Insolvency OutlookWorld heads for sixth year of crisis: something theMaya did not forecast!

no. 1191 >Global Sector OutlookNowwhere did global demand go?

no. 1192 >Special ReportTrade Routes:What has changed,whatwill change

no. 1193 >Macroeconomic, Risk and Insolvency OutlookEurope: still looking for a secondwind

no. 1194 >Business InsolvencyWorldwideCorporate insolvencies: the true nature of the Eurozone crisis

no. 1195-1196 >Macroeconomic, Risk and Insolvency OutlookTheworld at a crossroads

To come:

no. 1197 >Global Sector Outlook

EconomicOutlookseries…

46


> ArgentinaEuler Hermes Argentina S.A.Av. Corrientes 299 - 2° PisoC1043AAC CABA Buenos AiresTel.: +54 11 4320 7157/77

>AustraliaEuler Hermes Australia Pty Ltd.Level 9, Forecourt Building2 Market StreetSydney, NSW 2000Tel.: + 612 8258 5108

>AustriaPrisma Kreditversicherungs-AGHimmelpfortgasse 291010 ViennaTel.: + 43(0) 5 01 02-0

Euler Hermes Collections Gmbh,Zweigniederlassung OsterreichHandelskai 3881020 ViennaTel.: + 43 1 90 81 771

>BahrainPlease contact United Arab Emirates

>BelgiumEuler Hermes Europe S.A. (NV)Avenue des Arts - Kunstlaan 561000 BrusselsTel.: + 32 2 289 3111

>BrazilEuler Hermes Seguros de Crédito SAAvenida paulista, 2.421 - 3°andarJardim PaulistaSão Paulo /SP 01311-300Tel.: + 55 11 3065 2260

>CanadaEuler Hermes Services Canada Inc. 1155 René-Lévesque Blvd West Suite 1702Montréal (Québec) H3B 3Z7Tel.: + 1 514 876 9656

>ChileEuler Hermes Seguro de Crédito SAAve. Presidente Kennedy 5735Of.801, Torre PonienteLas CondesSantiagoTel.: + 56 2 246 1786

>ChinaEuler HermesConsulting (Shangai) Co.,LtdUnit 2103,Taiping Finance Tower,N°488 Middle Yincheng Road, PudongNew Area, Shangai, 200120Tel.: + 86 21 6030 5900

>ColombiaEuler Hermes ColombiaCalle 72 6-44 Piso 3Edificio APABogotaTel.: + 571 326 4640

>Czech RepublicEuler Hermes Europe SAorganizacni slozka Molákova 576/11186 00 Prague 8Tel.: + 420 266 109 511

>DenmarkEuler Hermes Denmark filial of Euler Hermes Europe SA, BelgienAmerika Plads 192100 Copenhagen OTel.: + 45 88 33 3388

>EstoniaPlease contact Finland

>FinlandEuler Hermes Europe SASuomen sivuliikeMannerheimintie 10500280 HelsinkiTel.: + 358 10 8 50 8500

>FranceEuler Hermes France SA Euler Hermes CollectionEuler Hermes World Agency1, place des SaisonsF-92048 Paris la Défense CedexTel.: + 33 1 84 11 50 50

>GermanyEuler Hermes Deutschland AG Friedensallee 25422763 HamburgTel.: + 49 40 8834 0

Federal Export Credit GuaranteesFriedensallee 25422763 HamburgTel.: + 49 40 8834 9000

Euler Hermes Collections GmbH Zeppelinstr. 4814471 PostdamTel.: + 49 331 27890-000

>GreeceEuler Hermes Emporiki SA16 Laodikias Street & 1-3 Nymfeou Street 115 28 Athens Tel.: + 30 210 69 00 000

>Hong KongEuler Hermes Hong Kong Services Ltd.Suites 403-11, 4/FCityplaza 412 Taikoo Wan RoadIsland EastHong-KongTel.: + 852 2867 0061

>HungaryEuler Hermes Europe SAMagyarorszagi FioktelepeKiscelli u. 1041037 BudapestTel.: + 36 1 453 9000

>IndiaEuler Hermes India Pvt. Ltd.4th Floor, Voltas House23, J N Heredia MargBallard EstateMumbai 400 001Tel.: + 91 22 6623 2525

>IndonesiaPT Assuransi Allianz Utama IndonesiaSummitmas II. Building, 9 th floorJI. Jenderal Sudirman Kav 61-62Jakarta 12190Tel.: + 62 21 252 2470 ext 6100

>IrelandEuler Hermes Ireland Allianz HouseElm ParkMerrion RoadDublin 4Tel.: +353 (0)1 518 7900

>IsraelICIC, 2, Shenkar street68010 Tel AvivTel: + 97 23 796 2444

>ItalyEuler Hermes Europe S.A. Rappresentanza per l’ItaliaVia Raffaello Matarazzo, 1900139 RomeTel.: + 39 06 87001

>JapanEuler Hermes Deutschland AG Japan BranchKyobashi Nisshoku Bldg. 7F8-7 Kyobashi, 1-chome, Chuo-KuTokyo 104 0031Tel.: + 81 3 3538 5403

>KuwaitPlease contact United Arab Emirates

>LatviaPlease contact Poland

>LithuaniaPlease contact Poland

>MalaysiaEuler Hermes Singapore Services Pte Ltd.Malaysia BranchSuite 3A_13A Level 13A, Block 3APlaza Sentral, Jalan SentralJalan Stesen Sentral 550470 Kuala LumpurTél.: +603 2264 8556 (or 8599)

>MexicoEuler Hermes Seguro de Crédito S.A.Blvd. Manuel Avila Camacho #164,8° pisoCol. Lomas de BarrilacoDeleg. Miguel HidalgoMexico DF CP 11010Tel.: + 52 55 5201 7900

Subsidiaries

Registered office: Euler Hermes Group — 1, place des saisons —92078 Paris La Défense — FranceTel. : + 33 (0) 1 84 11 53 77 — Fax : + 33 (0) 1 84 115017 — www.eulerhermes.com


>MoroccoEuler Hermes Acmar37, bd Abdelattif Ben Kaddour20050 CasablancaTel.: + 212 5 2279 0330

>The Netherlands Euler Hermes Nederland NVPettelaarpark 205216 PD’s-HertogenboschTel.: + 31 73 688 9999

>New ZealandEuler Hermes New Zealand LtdLevel 1, 152 Fanshawe StreetAuckland 1010Tel.: + 64 9 354 2995

>NorwayEuler Hermes Norge Holbergsgate 21 P.O. Box 6875 St. Olavs Plass0130 OsloTel.: + 47 23 25 6000

>OmanPlease contact United Arab Emirates

>PhilippinesPlease contact Singapore

>PolandTowarzystwo Ubezpieczen Euler Hermes S.A.ul. Domaniewska 50 B02-672 WarsawTel.: + 48 22 363 6363

>PortugalCOSEC - Companhia de Seguro de Créditos, S.A.Av. da República, nº 581069-057 Lisbon Tel.: + 351 21 791 3700

>QatarPlease contact United Arab Emirates

>RomaniaEuler Hermes Europe S.A.BruxellesSucursala BucurestiStr. Petru Maior, nr.6,Sector 1011264, BucarestTel.: + 40 21 302 03 00

>RussiaEuler Hermes Credit Management OOO Office C08, 4-th Dobryninskiy per.,8Moscow, 119049Tel.: + 7 495 98128 33 ext 4000

>Saudi ArabiaPlease contact United Arab Emirates

>SingaporeEuler Hermes Singapore Services Pte Ltd3 Temasek Avenue# 03-02 Centennial TowerSingapore 039190Tel.: + 65 6297 8802

>SlovakiaEuler Hermes Europe S.A, pobockapoist’ovne z ineho clenskeko statuPlynárenská 7/A821 09 BratislavaTel. : + 421 2582 80911

>South AfricaPlease contact Italy

>South KoreaEuler Hermes Hong Kong ServicesKorea Liaison OfficeRoom 1411, 14th Floor, Sayong Platinum Building156, Cheokseon-dongChongro-kuSeoul 110 052Tel.: + 82 2 733 8813

>SpainEuler Hermes Crédito,Sucursal en Españade Euler Hermes France-S.A.Paseo de la Castellana, 95 Planta 14Edificio Torre Europa28046 MadridTel.: + 34 91 417 77 67

>Sri LankaPlease contact Singapore

>SwedenEuler Hermes Sverige filialKlaraBergsviadukten 90P.O. Box 729 101 34 StockholmTel.: + 46 8 55 51 36 00

>SwitzerlandEuler Hermes Deutschland AG,Zweigniederlassung Zürich Tödistrasse 658002 ZürichTel.: + 41 44 283 6 5 65

Euler Hermes Reinsurance Tödistrasse 658002 ZürichTel.: + 41 44 283 65 85

>TaiwanPlease contact Hong Kong

>ThailandAllianz C.P. General Insurance Co, Ltd323 United Center Building30th FloorSilom RoadBangrack, Bangkok 10500Tel.: + 66 2638 9000

>TunisiaPlease contact Italy

>TurkeyEuler Hermes Sigorta A.sMaya Akar enterBuyukdere Cad. No:100k:7,34394, Esentepe/IstanbulTel. : + 90212290 76 10

>United Arab EmiratesEuler Hermesc/o Alliance Insurance (PSC) Warba Center, 4th FloorOffice 405 PO Box 183957DubaiTel.: + 971 4 211 6005

>United KingdomEuler Hermes UK 1 Canada SquareLondon E14 5DXTel.: + 44 20 7512 9333

>United StatesEuler Hermes North AmericaInsurance Company800 Red Brook BoulevardOwings Mills, MD 21117Tel.: +1 410 753 0753

Euler Hermes UMA Inc.(trade debt collection)600 South 7th StreetLouisville, KY 40201-1672Tel.: +1 800 237 9386

>VietnamPlease contact Singapore

Siège social : Groupe Euler Hermes — 1, rue Euler —75008 Paris — FranceTél. : + 33 (0) 1 40705050 — Fax : + 33 (0) 1 40705017 — www.eulerhermes.com

Subsidiaries

Registered office: Euler Hermes Group — 1, place des saisons —92078 Paris La Défense — FranceTel. : + 33 (0) 1 84 11 53 77 — Fax : + 33 (0) 1 84 115017 — www.eulerhermes.com

www.eulerhermes.comEuler Hermes Economic Outlook Global sectors review is publishedtwice a year by the Economic Research Department of Euler Hermes1, rue Euler, 75008 Paris, France – Tel.: + 33 (0) 1 40 70 53 77

This document reflects the opinion of the Market Management, Strategic and EconomicStudies Department of Euler Hermes.The information, analyses and forecasts contained herein are based on the Department'scurrent hypotheses and viewpoints and are of a prospective nature. In this regard, theMarket Management, Strategic and Economic Studies Department of Euler Hermes has noresponsibility for the consequences hereof and no liability. Moreover, these analyses aresubject to modification at any time.

www.eulerhermes.comThe Economic Outlook is published once a monthby the Economic Research Department of Euler Hermes1, place des Saisons 92048 Paris La Défense CédexE-mail: [email protected] – Tel. : +33 (0) 1 84 11 50 46

This document reflects the opinion of the Economic Research Department of Euler Hermes.The information, analyses and forecasts contained herein are based on the Department'scurrent hypotheses and viewpoints and are of a prospective nature. In this regard,the Economic Research Department of Euler Hermes has no responsibility for theconsequences hereof and no liability. Moreover, these analyses are subject to modificationat any time.

Mise en page 1 · Overview page 4 Editorial page 3 Annex1&2 CountryRiskLevels andInsolvency...

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