Recovery has slowed dangerously in the euro zone, with domestic demand contracting for the first time since 2009. “The overall momentum is disappointing to the say the least. Even the major euro zone countries have recorded a sharp slowdown with a sudden halt in Germany and France and very weak growth in Italy and Spain,” says Ludovic Subran. The slowdown in activity is likely to be confirmed in the second half, with growth of only 0.1% compared with 1.0% in the first half. According to Ludovic Subran, “the real risk is that of an even greater deterioration if solutions to provide support to the countries and financial institutions currently in difficulty are not decided immediately. It is essential to prevent any risk of contagion to the entire euro zone, and possibly beyond it.”
The ‘Arab Spring’ has brought about major changes in the Middle East and North Africa, and its impact on the growth outlook will continue to be felt throughout 2012. Euler Hermes is forecasting growth of 2.9% in 2011 and 3.9% in 2012, with significant downside risk. The political transition is still fragile in Egypt and Tunisia, and the Libyan, Syrian and Yemenite economies are expected to contract this year.
GDP growth slowed in Central and Eastern Europe and Russia in the second quarter – down to 4.4% versus 5.4% in the first quarter - due to a dip in its main growth drivers: external demand and investment. Growth is expected to come in at 4% in 2011 and 3.5% in 2012. Turkey again recorded the strongest growth in the region in the second quarter, adding to the fears of overheating.
Growth is also forecast to slow in Latin America, dropping to 4% in 2011 and 3.7% in 2012, compared with 6.1% in 2010. Brazil, Mexico, Chile, Columbia and Peru are the countries in the best position to cope with the uncertainties linked to a global economic downturn, even though they are not completely safe from a negative growth shock, linked in particular to second round effects of the expected fall in commodities prices.
In Sub-Saharan Africa, GDP is expected to grow by 5.2% in 2011 and 4.9% in 2012. This is a significant improvement on the low point reached in 2009. However, there is still possible downside if world demand, particularly for commodities, declines.
Overall, South, Central and East Asian economies remain well equipped to cope with the uncertain global outlook. Growth is forecast to slow to 7.3% in 2011 and 7% in 2012. Growth decelerated in most ASEAN countries in the second quarter, due to supply chain problems linked to the events that occurred in Japan in March. In contrast, the slight slowdown in the Chinese economy is due to monetary tightening. Nonetheless, together with India, where consumption remains strong, China continues to be one of the main drivers of world growth.
Country risk increased in six countries and declined in three other countries between June and September
According to Euler Hermes’ calculations, country risk increased in four countries due to greater exposure to economic risk: Turkey (up from ‘sensitive’ in June 2011 to ‘high’ in September 2011), Cyprus went from ‘low’ to ‘sensitive’ over the same period while risk rose from ‘low’ to ‘medium’ for Costa Rica and Trinidad and Tobago. Risk increased in two other countries due to their dependence on external financing, particularly Italy with an increase from ‘low’ to ‘sensitive’ and Croatia, up from ‘medium’ to ‘sensitive’.
In contrast, risk decreased for three other countries. In Japan (down from ‘sensitive’ to ‘low’) and Slovenia (‘medium’ to ‘low’), economic conditions improved for the short term, whereas Azerbaijan benefited from an improving structural situation (down from ‘high’ to ‘sensitive’).