Superheroes, Sidekicks and Villains the Guardians of the Economy

Macroeconomic and Country Risk Outlook Economic Outlook no. 1232 January 2017

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Superheroes, sidekicks and villains The Guardians of the economy

Economic Research Economic Outlook no. 1232 | January 2017 | Macroeconomic and Country Risk Outlook Euler Hermes

Contents

3 EDITORIAL 11 The emerging Fantastic Four will need Economic Research Euler Hermes Group superpowers to attract investors 4 OVERVIEW Economic 11 Mr Fantastic (South Korea) will capitalize Outlook 5 Unbreakable growth hits a glass ceiling on buffers

no. 1232 6 REGIONAL OUTLOOK 11 The Torch (Russia, India, Poland) will light

Macroeconomic up growth prospects and Country Risk Outlook 6 US Captain America: Flexing fiscal muscles, picking trade battles 11 Mrs. Invisible (Brazil, South Africa): No growth in sight, for now 6 The rise of the fiscal Avenger 12 The policy Thing (Turkey, Mexico) is 7 The monetary shield will be deployed faster weighing on growth The Economic Outlook is a monthly publication released by the Economic Research Department of Euler Hermes 7 Protectionism: Beware of the Winter Soldier 12 The X-Men: Big ticket items shaping Group. This publication is for the clients of Euler Hermes Group and available on when it comes to trade 2017 and beyond subscription for other businesses and organizations. Reproduction is authorised, 8 European Spider-Man: Agile policy-mix to 13 Price Wolverine to reflate the World so long as mention of source is made. Contact the Economic Research Depart - protect growth Economy ment Publication Director and Chief Eco - 8 Watch out the Sinister three: Brexit, the 13 (De)globalization: The end of the nomist: Ludovic Subran Macroeconomic Research and Country Italian banking sector, and general elections Magneto effect for trade and financial Risk: Ana Boata, Stéphane Colliac, Alberto flows? González de Aledo Pérez, Mahamoud 9 Relying on policy web-shooters Islam, Dan North, Daniela Ordóñez, Manfred Stamer (Country Economists) 15 Policy nudges everywhere look like a Sector and Insolvency Research : 9 The Chinese Iron Man is fine-tuning its perfect Storm Maxime Lemerle (Head), Farah Allouche, Yann Lacroix, Marc Livinec, Didier Moizo policy battle suit (Sector Advisors) 16 POLITICAL SEASONS AND POLICY NUDGES Support : Laetitia Giordanella (Office 9 Calibrating policy weapons will be pivotal to 2017-2018 Manager), Ilan Goren (Content Manager), George Kibala Bauer, Benedetta Scotti temper negative externalities (Research Assistants) 18 COUNTRY RISK LEVELS 2016 Editor: Martine Benhadj 10 Creating its own league to promote and Graphic Design : Claire Mabille Photo credits : Images courtesy of Allianz, finance growth rebalancing 20 FIND US ONLINE Images courtesy of Pixabay (public do - main under Creative Commons CC0), 21 OUR LATEST PUBLICATIONS Images courtesy of flickr.com under CC2, image courtesy of nasa unsplash.com un - der CC0 22 SUBSIDIARIES For further information , contact the Economic Research Department of Euler Hermes Group at 1, place des Saisons 92048 Paris La Défense Cedex – Tel.: +33 (0) 1 84 11 50 46 – e-mail: re - [email protected] > Euler Her - mes Group is a limited company with a Directoire and Supervisory Board, with a capital of EUR 13 645 323, RCS Nanterre 552 040 594 Photoengraving : Talesca Imprimeur de Talents – Permit January 2017; issn 1 162– 2881 ◾ January 17, 2017

2 Euler Hermes Economic Outlook no. 1232 | January 2017 | Macroeconomic and Country Risk Outlook

EDITORIAL

LUDOVIC SUBRAN

As much as we like to share the awe and wonder the global tempt to gravitate around superheroes, flexing their muscles economy has in store for economists, we have to spell out and vivifying the masses. Villains will be looking for mistakes one harsh truth. 2017 will neither be MARVEL-lous, nor comic, and causing mischief. nor super. But it may have more in common with those su - From monetary shields to policy web shooters, from super perheroes in Marvel’s comic books you used to read as a resilience to shocks to the hyper flexibility of companies, su - child. They have all matured into blockbuster movies and per countries around the world - and their sometimes less adult-size costumes and most likely invaded a supermarket super policy-makers - will have to make full use of their su - near you. perpowers to face another year of surprises. Yet it is not too late if you haven’t yet indulged in such fun One must “ Govern [them]selves with love, kindness, and service reads. Sit back, download the movie (legally), dress up if you to other s”, as Wonder Woman quipped. She was right. wish as Superman, Batman or the Hulk – we will no judging “Heroes are made by the paths they choose, not by the powers you - and enjoy. The Guardians of the Economy are here. they are graced with ” Iron Man summarized. Why is it important for you to rediscover your inner child? But when it comes for super quote that explains why policy Why should you frolic along with your inner clown? choices will matter more than anything else Batman rules. Because around the G20 negotiation table, the UN Assembly “It's not who I am underneath...but what I do that defines me. ” General, the Eurogroup, and any other global forum, there Wise words. are superheroes, sidekicks and villains are going through the After years of mutant economics, global growth will face motions. Surprise! Fiction may, once again, be not that far three of the most powerful X-Men. The price Wolverine, the from reality. trade and finance (de)Magneto, and even more policy Yes, they may have lost some speed and aura. But what they Storm(s). Reflation, de-globalization, and political risk are lack in stamina, they will be making up in malice. The real once again running the show this year. fun part is that they all want to use their superpower, at the Yet, the global stage could be quite secondary this year. In same time and without much coordination or afterthought. the end, the only kryptonite superheroes know are polls. The results can be HUGE. Keep an eye for Captain America, the European Spiderman, the Chinese Ironman and the Fantastic Four of the emerging world. 2017 promises to be quite a show. Sidekicks will at -

3 Economic Outlook no. 1232 | January 2017 | Macroeconomic and Country Risk Outlook Euler Hermes

OVERVIEW

Superheroes , sidekicks and villains The Guardians of the economy

MACROECONOMIC AND SECTOR RESEARCH TEAMS

+ Global GDP growth is expected to end up at +2.5% in 2016, showing resilience in spite of the many economic and political hurdles. In 2017, growth should pick up to +2.8%, staying below +3% for the seventh consecutive year. + The US would benefit from a fiscal boost pushing growth to +2.4% in 2017. After a year of uncertainty and economic pause, the aftermath of the election is already bringing confidence back. The active policy-making should spur private investment if political noise, tighter financing conditions, and renewed protectionism are contained. + The Eurozone will grow +1.6% in 2017. It will continue to face its usual set of teething troubles from Brexit and the Italian banks situation to a busy election year in key countries. Strong institutional stopgaps (accommodative +2.8% monetary policy, fiscal stimuli, and European programs) will Expected global GDP growth in 2017 help contain risks. + China will address its fragilities such as credit risk and excess capacities to avoid volatility. Yet strong public support and cautiously accommodative monetary policy will help reach +6% growth this year. + In emerging markets, the absence of a broad-based acceleration will increase selectivity. Private sector spending will be pivotal in some countries (e.g. Russia and India). The business cycle may be limited by ongoing adjustments in others (Brazil and South Africa), while another group of countri