International
Economic Outlook
Euler
Hermes says worldwide economic slowdown has started: and
expects global economic growth to fall to 3% in 2005 and Euro Zone growth
to come in below 2%
In
its latest International Economic Outlook, Euler Hermes is forecasting
global economic growth for 2004 of 4%, boosted by 4.3% GDP growth in
the US and 4.2% growth in Japan. Expectations for the Euro zone are
for growth of 1.9%, France and Spain being the biggest contributors
with 2.5% and 2.7% growth, and Germany and the Netherlands showing only
moderate growth (1.5% and 1.1% respectively). With a global economic
slowdown that started in the second quarter 2004, the 2005 forecast
is less promising: 3% growth worldwide and in the United States, 2.1%
in Japan and 1.8% in the Euro zone. In this issue, there is a special
focus on and risk analysis of Turkey, which has posted strong economic
growth and which might soon open negotiations on accession to the European
Union.
Despite
previous forecasts of global economic growth of 4% for 2004, the international
economic situation has begun to slow down in the second quarter of 2004.
Growth in the United States has started to decrease because of reduced
internal demand and the Japanese economy is still recovering. In addition,
the relatively strong internal demand in some countries of the European
Union (France, the United Kingdom and Spain) is expected to fall. "There
are several reasons for this", says Philippe Brossard, Director
of the Economic Research Department of Euler Hermes: "Interest
rates in the United Kingdom will rise and will impact internal demand.
In France the saving rate will stop falling and stabilise and lastly
the real-estate boom in Spain will come to an end.
"As
to the countries in the European Union with weak internal demand due
to unemployment, slight inflation and low wage increases such as Germany
and the Netherlands, they can rely less and less on their exports as
international trade is set to slow down in 2005.", he adds.
However,
the European Union is the leading global trade power, followed by Asia,
the most dynamic area of the world, and the United States. Asia actually
represents 24% of worldwide exports and 22% of imports compared with
16% and 15% respectively in 1980, with China being the world's 4th biggest
exporting nation. International trade is expected to grow by 8.6% in
2004 but is forecast to slow a little in 2005 as Asian growth stabilises,
European demand hesitates and US growth reduces.
The
outlook for 2005 is not optimistic with global GDP growth of 3% forecast.
The Euro zone and the United States will see their economies grow by
respectively 1.8% and 3% and Japan by 2.1%.
United
States : losing its dynamism
Although American GDP is expected to grow by 4% in 2004, the economy
has been slowing down since the beginning of the year. The reasons for
this slowdown are several: a fall in internal demand despite the financial
saving rate falling from 2.2% in July 2003 to 0.6% in July 2004, a decrease
of wages and the increase in the price of oil which has reduced purchasing
power by 1%. On the corporate side however, profits are expected to
rise by 14% this year and insolvencies to fall by 5%. Investments should
rise by 10% in 2005.
Japan
: strong growth for 2004
The world¹s second economy is improving further, which is reflected
in forecast 2004 GDP growth of 4.2%, a ten-year high. But in 2005 this
growth is expected to fall to only 2.1% because of the forecast slowdown
in international trade and fall in internal demand resulting from the
new plan for financing pensions.
France
: good performance
With GDP growth up 2.5%, France is one of the leading countries of the
Euro zone. Consumption is on the rise, mainly due to a decrease in the
savings rate in 2003 and 2004. Exports, on the other hand, are doing
less well with only 4% growth this year due to a loss of competitiveness,
the euro-dollar exchange rate, and to unfavourable export destinations
(Germany). Corporate insolvencies are expected to fall slightly in 2004
(4%) and the gross operating surplus should rise by 7% after a small
rise in 2003 (0.4%). In 2005 however, growth is not forecast to exceed
2.1% as worldwide demand slows and the savings rate stabilises.
United
Kingdom : on top speed in 2004 but a slowdown in 2005
With a positive GDP for almost 12 years running, the United Kingdom
is the leading country in the European Union with forecast 2004 GDP
growth of 3.4%. The growth is primarily due to strong internal consumption
powered by low unemployment rates, wage increases in both the public
and private sectors, and booming house prices. With rising interest
rates, whereas household debt is at historic high level, and with the
necessary control of public finances, GDP growth for 2005 is not expected
to exceed 2.2%.
Germany
: very low internal demand
The German economy is still recovering and is expected to have only
1.5% GDP growth this year and 1.4% in 2005. The very low level of internal
demand is caused by a high level of unemployment (4.4 million people)
and the uncertainty surrounding the implementation by the government
of the Hartz 4 Program which will cut welfare and unemployment benefits.
Exports to the US, Asia and the other EU countries are the main drivers
for the economy and are forecast to rise by 10% in 2004.
Belgium
: 2005 growth expectations decline
Although the Belgian economy has recovered with GDP growth of 2.5% forecast
for 2004, the forecast for 2005 is for a lower growth rate (2.2%), albeit
above the European average. Belgian growth seems to have reached its
limits and the gap between it and its trading partners, especially France,
is reducing. Exports which have accelerated in 2004 will stabilise in
2005 because of less favourable global economic growth expectations
and internal demand remaining moderate.
Spain
: losing competitiveness
Spanish internal demand remains strong and is boosting imports. The
weak spot of the country¹s economy is the loss of international
competitiveness due to a rise in wages and industrial prices as well
as to products with less added value. Moreover, Spanish tourism is having
to face competition from cheaper countries. GDP is expected to grow
by 2.8% in 2004 and 2.7% in 2005.
Italy
: low imports and exports
The Italian economy is not taking off and GDP growth for 2004 is expected
to be in the order of 1.2%, among the lowest in the European Union.
Internal demand is low because of a high unemployment rate (8.8%) and
the government¹s decision to increase the retirement age gradually
to 63 by 2013. Exports increased a little in the second quarter of 2004
but Italian tourism is starting to suffer from strong competition coming
from Greece and Croatia.
Netherlands:
lagging behind
Internal demand is at a stand-still due to low consumption, public spending
reduction programs and insufficient investment. Exports are the main
source of growth but are threatened by a lack of price competitiveness.
Forecast 2005 GDP growth is only 1.5%, a little better than forecast
growth for 2004 (1.1%) but still under the European average of 1.9%
(2004) and 1.8% (2005).
Turkey:
ready for the EU ?
Turkey¹s economy is booming, driven by a fall in the rate of increase
of insolvencies, strong internal demand and flourishing exports. This
results in GDP growth forecasts of 7% for 2004 and 4% for 2005. But
with exports not rising as fast as imports, Turkey suffers from a ballooning
current account deficit. The financial and employment markets still
need to be reformed. The European Council will take its decision on
opening negotiations with Turkey on its membership of the EU on December
17th. In the meantime, Turkey is rated C in Euler Hermes¹ country
risk analysis. The credit insurer believes that economic risk remains
high because of the public debt (over 80% of GDP), current account deficit,
and potential exchange rate instability.
Euler
Hermes is the world-wide leader in credit insurance and one of the
leaders in bonding and guarantees. With 5,400 employees in 36 countries,
Euler Hermes has a share of 36% of the global credit insurance market
and offers a complete range of services for the management of customer
receivables.
A
detailed, country by country analysis of the international economic
situation is featured in the Economic Outlook N° 1091, available
on request from Euler Hermes. For further information visit www.eulerhermes.com
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