While the turbulence experienced in the first months of 2016 has subsided the underlying issues persist. Low commodity prices, tepid international trade growth, debt overhang, and ineffective monetary and fiscal policies are key contributors to the current global slowdown, according to Atradius.
The baseline growth forecast for 2016 is only 2.4%, 1.6% in the Eurozone, and this may deteriorate further through the year. After an overall picture of improving insolvency ratios in 2015, the insolvency forecasts for 2016 are less optimistic. In most countries the current default level will stabilize but at generally high levels.
In its biannual Economic Outlook Atradius identifies the five top global risks that would drive this:
- A hard landing in China, defined by GDP growth below 5% this year, would have a strong impact worldwide, reinforcing the negative effects already seen on global trade, commodity prices and financial turbulence.
- US monetary policy has a similar global impact. A steady, well-communicated tightening schedule is expected. Still, a poorly communicated, or even a well communicated but badly received course of action, is a clear threat. The accompanying financial turbulence would pose a large drag on global growth, particularly in emerging markets.
- Persistently slower growth in the eurozone, despite aggressive ECB monetary stimulus, could lead to longer term stagnation and elevate political uncertainty, already heightened due to the Brexit referendum.
- A rapid rise in the oil price would increase costs for oil importers, removing a key benefit for growth in many advanced markets such as the eurozone.
- Deleveraging taking off would also hold back growth in advanced markets, suppressing demand.
These last three risks would have a moderately negative impact on EU countries, with most becoming more acute in the periphery countries.
Global financial market volatility would especially hurt emerging market economies, whose economic outlook is already under pressure. More restrictive access to finance at a higher cost would further drive up the already high insolvencies that we now predict in key markets like China and Brazil.
“The financial turbulence seen earlier this year provided us with a small taste of what could come later in 2016 should China land hard or if the Fed monetary policy is not well communicated or badly received,” says John Lorié Global Chief Economist, Atradius. “The economic outlook for advanced markets in Europe is mediocre with risks to the downside as well. Should these risks materialize, the impacts on insolvencies would be felt most strongly in countries like Italy, Greece and Portugal, where levels are still high.”