Conquering the Chasm Global Export Forecast Spring 2015

 
Conquering the Chasm Global Export Forecast Spring 2015
Conquering the Chasm

Global Export Forecast
Spring 2015
Conquering the Chasm Global Export Forecast Spring 2015
Global export forecast

Table of Contents            EDC ECONOMICS
1.0 GEF Executive Summary

2.0 Country Risk Overviews   Peter Hall, Vice-President and Chief Economist
                             Tina Drew, Administrator
3.0 Sector Overviews

4.0 Provincial Overviews

                             Economic and Political Intelligence Centre

                             Stuart Bergman                        Todd MacDonald
                             Marc Antonius                         Ross Prusakowski
                             Daniel Benatuil                       Aimee Rae
                             John Bitzan                           Richard Schuster
                             Catherine Couture                     Geoff Stone
                             Nadia Frazzoni                        Ian Tobman
                             Andrea Gardella                       Peter Whelan

GLOBAL EXPORT FORECAST SPRING 2015                                                    2
Table of contents

                             1.0   GEF Executive Summary                                          5
Table of Contents
                                   1.1    Conquering the Chasm                                    6
1.0 GEF Executive Summary
                                   1.2    High-Wire Act, Euro-Style                               9
2.0 Country Risk Overviews
                                   1.3    The Contrasting Impacts of Plummeting Oil Prices        10
3.0 Sector Overviews
                                   1.4    A Renminbi Hub for the Americas                         11
4.0 Provincial Overviews
                                   1.5    Swimming Without Shorts in a World Awash in Liquidity   12

                             2.0   Country Risk Overviews                                         14
                                   2.1    Brazil                                                  15
                                   2.2    China                                                   16
                                   2.3    France                                                  17
                                   2.4    Germany                                                 18
                                   2.5    India                                                   19
                                   2.6    Japan                                                   20
                                   2.7    Mexico                                                  21
                                   2.8    Russia                                                  22
                                   2.9    South Africa                                            23
                                   2.10   United Kingdom                                          24
                                   2.11   United States                                           25

                             3.0   Sector Overviews                                               27
                                   3.1    Energy                                                  28
                                   3.2    Ores and Metals                                         29
                                   3.3    Agri-Food                                               30
                                   3.4    Fertilizers                                             31
                                   3.5    Forestry Products                                       32
                                   3.6    Automotive                                              33
                                   3.7    Industrial Machinery and Equipment                      34
                                   3.8    Advanced Technology                                     35
                                   3.9    Aerospace                                               36
                                   3.10   Chemicals and Plastics                                  37
                                   3.11   Consumer Goods                                          38
                                   3.12   Services                                                39

GLOBAL EXPORT FORECAST SPRING 2015                                                                3
Table of contents

                             4.0 Provincial Overviews               41
Table of Contents
                                 4.1    Newfoundland and Labrador   42
1.0 GEF Executive Summary
                                 4.2    Prince Edward Island        43
2.0 Country Risk Overviews
                                 4.3    Nova Scotia                 44
3.0 Sector Overviews
                                 4.4    New Brunswick               45
4.0 Provincial Overviews
                                 4.5    Quebec                      46
                                 4.6    Ontario                     47
                                 4.7    Manitoba                    48
                                 4.8    Saskatchewan                49
                                 4.9    Alberta                     50
                                 4.10   British Columbia            51

GLOBAL EXPORT FORECAST SPRING 2015                                  4
1.0 GEF ExECUTIVE Summary

Table of Contents

1.0 GEF Executive Summary
    1.1   Conquering
          the Chasm               T
    1.2 High-Wire Act,
        Euro-Style
    1.3 The Contrasting
        Impacts of Plummeting
        Oil Prices
    1.4   A Renminbi Hub
          for the Americas
    1.5 Swimming Without
        Shorts in a World Awash
        in Liquidity
2.0 Country Risk Overviews

3.0 Sector Overviews

4.0 Provincial Overviews

GLOBAL EXPORT FORECAST SPRING 2015    5
1.0 GEF ExECUTIVE Summary

Table of Contents                 1.1 Conquering the Chasm

1.0 GEF Executive Summary         The audience gasps. Way up in the vaulted canopy, the high-wire act falters. They’ve seen this all before,
    1.1   Conquering              numerous times. At first, they couldn’t look – the odds of a horrible end seemed too great. But time and again,
          the Chasm               the foothold was regained, and the act resumed. Now, it looks like that master wire-walker is actually going to
                                  make it, and with rapt attention, the throng is willing that lone figure to succeed. Will the world economy’s
    1.2 High-Wire Act,
                                  high-wire act really end well?
        Euro-Style
    1.3 The Contrasting           The setbacks have been manifold. Most recently, neo-stagnation has been the worry. From Europe’s brush with
        Impacts of Plummeting     “triple-dip” to Japan’s new-tax trauma to the demand difficulties of the emerging market giants, steady growth
        Oil Prices                has been elusive. Trouble is, steady economic movement is essential to coping with and overcoming the structural
    1.4   A Renminbi Hub          weaknesses revealed and magnified by the crisis of 2008-09. So far, so good: we have not been knocked off our
          for the Americas        game by impossible fiscal chasms, financial market carnage, waves of political upheaval, experimental policy
                                  measures and a host of smaller but significant inhibitors. Consistent movement is about all that remains to get
    1.5 Swimming Without
                                  global commerce to the end of the high wire and on to a firmer footing.
        Shorts in a World Awash
        in Liquidity
                                  Canada has had a firmer foothold than most, but lately there have been clear signs of fatigue. Consumer debt
2.0 Country Risk Overviews        levels have soared. Housing markets are overbuilt. Governments at the provincial level still face years of austerity.
                                  Plunging prices are decimating the resource industries, which have been until recently an economic mainstay.
3.0 Sector Overviews
                                  Consequently, domestic investment is slowing. High-profile retailers are pulling up the tent pegs, while others are
4.0 Provincial Overviews          consolidating. Suddenly, our own high-wire act is looking precarious. Will we make it?

                                  Thankfully, there’s a wire-walker that is a standout. It certainly didn’t start well for this one; it began as the
                                  weakest of the bunch. But it is now moving surely, and is practically running across the wire. And it just happens
                                  to be Canada’s number one customer. America is going full-tilt, and thankfully, its success is catching on. Can its
                                  momentum carry it – and the rest of us – along, or like the rest of the world, is it also at great risk of a bad turn
                                  of events? The difference for the US economy is the presence of an essential ingredient – pent-up demand.

                                  It is probably most obvious in the US housing market. Dramatic growth notwithstanding, US housing market
                                  activity still finds itself well shy of the basic demographic requirements of the economy. That was necessary a few
                                  years ago to get rid of the egregious excesses that had swamped the market. But those are now long gone, and it is
                                  becoming more obvious that the market is in deficit. In fact, it can easily grow by 40% over the next year or two
                                  and only just be meeting the current needs of the market. More growth is needed to deal decisively with the deficit.

                                  What’s even more inspiring about this sub-market’s about-face is that it is a key leading indicator of economic
                                  activity. Its movements are replicated in other economic developments months down the road. As such, if strong,
                                  double-digit growth can be expected here, it is likely to show up elsewhere in short order. One of the first places is
                                  consumer spending. Imagine all the fixings that are needed for the wave of newly built homes in the marketplace.
                                  This demand in turn creates jobs and incomes that pull more players into the spending game. Not to mention that
                                  Americans are driving around in clunkers that need a serious near-term upgrade.

                                  Get the US consumer going, and it’s a major accomplishment. They account for almost 70% of the world’s largest
                                  economy. Their absence over the past 7 years has been felt by the broader economy. Their return is having huge
                                  repercussions, not just for the US economy itself, but for the world. Simple math shows that American consumers
                                  account for 13 cents of every dollar that circulates worldwide. This revival is for everyone.

                                  Is that the end of the story? Far from it. Believe it or not, there is even more excitement in the business investment
                                  arena. Groggy from a protracted hibernation, US business is waking up to a crisis of a different sort. The fast
                                  ramp-up of activity has gobbled up existing resources so quickly that there’s a widespread capacity crunch. Capital
                                  spending has vaulted up into the double digits, and given the pace of new orders, more new capacity is definitely
                                  needed in the near term. In fact, there’s a worry that the capacity to create new capacity is also tight, suggesting
                                  risk that orders may not be met. Add it all up, and we are expecting US GDP growth of 3.6% this year, and 3.3%
                                  in 2016. Does low capacity put this outlook at risk?

                                  Ironic that we have been so worried about a lack of demand, and now it’s a lack of supply that may ruin the
                                  recovery. Is it, indeed, a real threat to global growth? Quite the contrary, it’s likely a guarantee of growth. Global
                                  crisis spurred a dangerous reversion to protectionism – Buy American, France First and so on. Sadly, some of the
                                  greatest beneficiaries of globalization were the first to jump on the protectionism bandwagon. Re-shoring became
                                  a popular buzz-word. The outcome? For starters, apart from very near neighbours, US growth has thus far been

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                         6
1.0 GEF ExECUTIVE Summary

                                  fairly self-contained. But bumping up against capacity limits changes the picture. Assuming firms will not turn
Table of Contents
                                  business away, capacity is now more likely to be sourced from abroad – finally spreading the benefits of US
1.0 GEF Executive Summary         growth further afield. Additional encouragement will come from the fast-appreciating greenback, up by over
                                  12% on a trade-weighted basis since mid-2014. Do the numbers agree?
    1.1   Conquering
          the Chasm
                                  It’s too early to tell, but so far, results are encouraging. The Eurozone has definitely shrugged off the worst fears
    1.2 High-Wire Act,            of a triple-dip, and recent data on both expectations and real activity are quite positive. There will need to be
        Euro-Style                much more evidence before we can conclude that Europe is on a new, higher-growth trajectory, but our
    1.3 The Contrasting           expectations, which are much the same as others’, is that growth will accelerate to 1.6% by 2016.
        Impacts of Plummeting
        Oil Prices                Europe is on the move. Most of the news on China is bleak. Soft domestic demand, punctuated with stories of
    1.4   A Renminbi Hub          policy-led construction excesses and financial market fragility, is the predominant theme, leading many forecasters
          for the Americas        to write down growth to something just under 7%. Absent a significant change in external growth, this is
                                  reasonable. However, considering the international trade vacuum that opened up in China back in 2009 and the
    1.5 Swimming Without
                                  lack of OECD-area growth since, a return to developed-market growth – starting with the US economy – suggests
        Shorts in a World Awash
                                  something much better for China’s exports in the near term. If our outlook for the US and the Eurozone is realized,
        in Liquidity
                                  it is entirely possible to see China’s export growth back up into double digits, enough to see trade climb back into
2.0 Country Risk Overviews        the economy’s driver’s seat.
3.0 Sector Overviews
                                  Plunging oil prices are adding more than a casual wrinkle to the outlook. Resource-sector investment has been
4.0 Provincial Overviews          a vibrant island of growth in an otherwise weak world. Now that picture is changing, and there are big questions
                                  about the net effects. These are covered in a special article on the issue. On balance, we believe that the positive
                                  effects on net oil-consuming economies will outweigh the negative effects on the big oil producers, lifting global
                                  growth. The price shakeout is itself related to the return of growth and the unwind of extraordinary post-crisis
                                  monetary measures. Prices for a range of commodities were artificially high, and are now trying to find a more
                                  stable platform. Until that point, we can expect turbulence.

                                  World growth will benefit from the robust US performance and its knock-on effects on the rest of the world.
                                  Our forecast calls for growth this year of 3.5%, and for an additional 3.9% in 2016. We’re getting to the end
                                  of the tightrope.

                                  Plunging resource prices are taking a bite out of Canadian GDP growth this year. The impact on the energy
                                  sector is dramatic. However, lower resource prices have also brought the Canadian dollar down with them.
                                  The non-energy manufacturing sector, already benefiting from the rise in US demand and tightening American
                                  capacity, now has a currency bonus enhancing price competitiveness. The result is upheaval on multiple fronts.
                                  Growth is shifting from the domestic sector to external demand, and even on the external side, growth is shifting
                                  dramatically from the resource side to non-resource manufacturing and services. Given our expectation that oil
                                  prices will average just over USD60 per barrel this year, the net effect on GDP growth is about 0.3%. As such,
                                  Canada’s growth is expected to average 2.4% this year and next year.

                                  Canadian exports did well in 2014. Merchandise exports grew by 10.9%, aided by favourable prices, but over
                                  half of the growth was sheer volume activity. Momentum is strong going into 2015, and based on the shifts in
                                  the economy, the outlook for overall trade is positive. The crying need for capacity stateside is expected to power
                                  double-digit growth in non-mining equipment exports. The auto sector will also see two-digit performance,
                                  thanks largely to the weaker dollar. Aerospace will capitalize on a strong showing in other aircraft and parts exports
                                  and the slumping value of the Canadian dollar. Consumer goods will also do well, thanks to Americans opening
                                  up their wallets once again.

                                  Energy exports are the big spoiler. Volume shipments are actually forecast to rise modestly, but prices will
                                  drive total sales down by 23.3%. A partial recovery is forecast for 2016, split roughly between volume gains and
                                  a partial recovery in prices.

                                  The bottom line? The global economy has very skillfully traversed its largest chasm in recent memory. It has been a
                                  death-defying high-wire act, with safety nets that long since became very frayed. The wire-walker is perhaps weary,
                                  but gaining courage from the success of efforts past and the obstacles overcome. While still vulnerable to any
                                  disturbance, the current proximity to the “other side” is building confidence that we are making it. Our challenge?
                                  To ensure that we shift along with the balance of growth, capturing as much of it as we can.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                        7
1.0 GEF ExECUTIVE Summary

                                  Table 1: Key Economic Estimates (KEEs)
Table of Contents

1.0 GEF Executive Summary
                                   EXPORT FORECAST OVERVIEW                             2012        2013       2014         2015 (f)      2016 (f)
    1.1   Conquering
          the Chasm                GDP (% y/y)

    1.2 High-Wire Act,             Canada                                                   1.7      2.0        2.4           2.4           2.4

        Euro-Style                 United States                                            2.3      2.2        2.4           3.6           3.3

    1.3 The Contrasting            Euro Area                                                -0.7     -0.5       0.8           1.4           1.6
        Impacts of Plummeting      Japan                                                    1.5      1.6        0.1           1.1           1.2
        Oil Prices
                                   Developed Markets                                        1.2      1.3        1.8           2.5           2.5
    1.4   A Renminbi Hub
                                   Emerging Asia                                            6.7      6.6        6.5           6.8           6.9
          for the Americas
                                   Latin America and the Caribbean                          2.9      2.8        1.2           1.2           2.4
    1.5 Swimming Without
        Shorts in a World Awash    Emerging Europe                                          7.4      4.7        2.7           -1.3          0.8
        in Liquidity               Africa and Middle East                                   5.0      3.1        3.3           4.1           4.8
2.0 Country Risk Overviews         Emerging Markets                                         5.1      4.7        4.4           4.3           4.9

3.0 Sector Overviews               World Total                                              3.4      3.3        3.3           3.5           3.9

                                   Currencies
4.0 Provincial Overviews
                                   USD/CAD                                                  1.00     0.97      0.91           0.82         0.84

                                   Commodity Prices

                                   WTI                                                      $94      $98       $93            $61           $71

                                   Lumber (WSPF, US$ per thbf)                          $255        $318       $349          $383          $400

                                   Copper (USD/MT, LME)                                 $7,947      $7,322    $6,862        $5,806        $5,995

                                   Wheat: Canada (USD/Metric Ton)                           $7       $7         $6            $5            $6

                                   Other

                                   US housing starts (‘000s)                            780.60      924.90    1,005.80      1,350.00      1,550.00

                                   Sources: Statistics Canada, EDC Economics

                                  Table 2: Canadian Merchandise Export Forecast by Region

                                                                                                   % Share               Export Outlook
                                                                                       CAD bn      of Total                (% growth)
                                   EXPORT FORECAST OVERVIEW                             2014        2014       2014         2015 (f)      2016 (f)

                                   Developed Markets

                                   United States                                        375.9        76.5      12.2            -1            9

                                   Western Europe                                           39.2     8.0       15.5            2             6

                                   Japan, Oceania and Developed Asia                        23.4     4.8        2.9            1             -2

                                   Emerging Markets

                                   Latin America and the Caribbean                          13.3     2.7        7.3            4             5

                                   Emerging Europe and Central Asia                         3.5      0.7       -5.3            -6            3

                                   Africa and the Middle East                               8.4      1.7        17.8           7             7

                                   Emerging Asia                                            27.8     5.7        -2.1           4             5

                                   Total Goods Exports                                  491.6       100.0      10.9            0             8

                                   Total Emerging Markets                                   53.1     10.8       2.7            4             5

                                   Total Developed Markets                              438.5       89.2       11.9            -1            8

                                   Sources: Statistics Canada, EDC Economics

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                   8
1.0 GEF ExECUTIVE Summary

Table of Contents                 1.2 High-Wire Act, Euro-Style

1.0 GEF Executive Summary         Among recent synonyms for slow, Europe’s economy ranks close to the top. Beset by a plethora of deep structural
    1.1   Conquering              strictures, Europe watchers wonder that there has been any growth at all, and that its latest brushes with recession
          the Chasm               have not brought it down. It has put to severe test a zone known throughout history for its irreconcilable schisms.
                                  Some openly doubted the mega-economy’s ability to withstand its first recession. So far, it has outlasted a very
    1.2 High-Wire Act,
                                  severe one, although it is not yet out of the woods. Will the Euro Area outlast its manifold structural challenges,
        Euro-Style
                                  or is the single market, as we know it, still at risk?
    1.3 The Contrasting
        Impacts of Plummeting     There is a long list of irritants. Close to the top would be slow growth itself. OECD’s projection for annual growth
        Oil Prices                potential is a skinny 1%, against over 2% in the US. The battle for a share of this wealthy but sluggish market
    1.4   A Renminbi Hub          is bound to keep intra-regional trade a hot issue. Weak overall population growth is key to sluggish demand
          for the Americas        projections, keeping immigration an obvious policy priority. But slow growth and divergences in sub-population
                                  growth rates have for some time created divisions along racial lines – which from time to time escalate to the top
    1.5 Swimming Without
                                  levels of politics. Current demographic trends suggest that intra-country and intra-region population friction will
        Shorts in a World Awash
                                  likely only rise over time, elevating risk of instability.
        in Liquidity
2.0 Country Risk Overviews        Public finances in the Euro Area are another source of irritation. All countries are in violation of the Maastricht
                                  rules, but some a lot more than others. Discipline around these rules is fundamental to cohesion, and lax or
3.0 Sector Overviews
                                  flawed adherence to these was laid bare following the wave of extraordinary post-crisis stimulus. Surprisingly,
4.0 Provincial Overviews          scathing austerity – imposed, in certain cases – was agreed to, and while acrimonious, did not rend the Area’s
                                  political fabric. But it’s stretching it pretty thin now. Oddly, as austerity is now bearing tangible fruit – with
                                  Europe’s worst fiscal sinners either achieving or marching fast toward balanced budgets – anti-austerity
                                  movements are gaining momentum, and in Greece’s case, getting elected. With debt ratios still impossibly
                                  high in a number of cases, fiscal-led dissent ain’t over yet.

                                  The list grows. Near collapse of Europe’s financial system, linked as it was to its fiscal woes, is exacerbating
                                  sluggish growth. Tight regulatory rules and a desire to attain them first have compromised lending activity.
                                  Latent structural weakness suggests this mindset will be around for a while. One remedy has been cleverly
                                  constructed monetary measures, purchases of select asset classes designed to enhance intra-regional lending.
                                  Insufficient, this has morphed into “whatever-it-takes” monetary easing, acceptable to many but anathema to
                                  inflation-averse Germans. In its infancy, the program is being tolerated, but at the sight of price acceleration
                                  there are bound to be “words.”

                                  To this we can add geopolitical concerns. As if the Euro Area did not have enough internal pressures, the Russia–
                                  Ukraine conflict flared up virtually out of nowhere. One key implication is access to energy. Russia supplies Europe
                                  with about half of its oil and about one-third of its natural gas, creating a short-run supply problem during the
                                  recent European winter, in addition to compromising the deep bilateral financial and economic ties. Resolution
                                  can’t be predicted at this point, so the internal European tensions surrounding alternative reprisals, sanctions and
                                  solutions are, with other tensions, likely to persist.

                                  These and other extant Euro risks are an ever-present cloud over a tenuous recovery. US recovery, clear
                                  signs of pent-up European demand on multiple fronts, impressive recent data, a rapid run-up in the composite
                                  leading indicator and a decent consensus forecast all suggest a brighter near-term outlook than the risks suggest.
                                  For now, growth seems to be gingerly winning out. But the presence of the daunting risk list is a reminder that
                                  any growth interruption is a heart-stopper.

                                  The bottom line? Make no mistake, nascent growth notwithstanding, Europe has a tough economic and political
                                  row to hoe in the coming years. Will it make it? Few of the current list items are new. If anything, it’s more than a
                                  small miracle that Europe has made it this far. If growth outshines expectations – and there’s a good chance it will –
                                  Europe may just do it.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                       9
1.0 GEF ExECUTIVE Summary

 Table of Contents                     1.3 The Contrasting Impacts of Plummeting Oil Prices

 1.0 GEF Executive Summary             Plunging crude oil prices have dramatically changed the economic growth landscape. Canada knows this all
         1.1   Conquering              too well – anything related to oil seems to be in freefall, while outside of energy, industry is expecting a bonanza.
               the Chasm               The effect is being felt across the global macroeconomy. Oil exporters are counting their losses, while net
                                       importers are already projecting handsome dividends. As an imminent rebound is unlikely, how will the price
         1.2 High-Wire Act,
                                       plunge change world growth? And how is Canada expected to fare?
             Euro-Style
         1.3 The Contrasting           Let’s start with the bad news. Oil net exporters, like Canada, are bleeding cash. The biggest net exporter is
             Impacts of                Saudi Arabia, at 8.4 million barrels per day. At a world price of $60 per barrel, that’s costing them about
             Plummeting Oil Prices     $100 billion annually. Russia is second, with a net hit of $87 billion annually. The rest of the Middle East loses
         1.4   A Renminbi Hub          another $100 billion, with Nigeria and Venezuela also making the top list of money losers. Canada is feeling
               for the Americas        the pain, significantly, but industrial diversification is saving us from a far more negative result. If it is any
                                       additional solace, we don’t even make the top 10.
         1.5 Swimming Without
             Shorts in a World Awash
                                       Panning through the extensive list of global net exporters, it is clear that while non-oil Canadian exports go to
             in Liquidity
                                       these destinations, with the exception of Russia, these account for 1.8% of total Canadian exports. In Russia’s
 2.0 Country Risk Overviews            case, exports are being hampered already by sanctions, and as such, are limiting the direct impact of the oil shock
                                       on trade activity. Overall, it’s not a great news story, as individual exporters that have had success in oil-rich markets
 3.0 Sector Overviews
                                       will suffer. But on the whole, the net damage to Canada will be limited. As bad news goes, we’ve seen worse.
 4.0 Provincial Overviews
                                       How about the good news? The flipside is that net importers are saving money – buckets of it. At a $60 average
                                       price for West Texas Intermediate crude, the US – the world’s top net importer in 2013 (the latest annual data
                                       we have) – saves over $100 billion annually. Add another $50 billion if the price averages $45. Much of this
                                       gets passed on to consumers in lower pump prices. If it were all passed on, it adds up directly to about 0.8%
                                       of US consumer spending – a huge one-year boost. The impact of this on Canada’s top customer is likely
Table 3:
                                       already translating into higher imports of Canadian goods. It doesn’t hurt that our dollar is now about 20%
                                       cheaper than a year ago. Estimates of the impact on the US economy this year range from 0.3 to 0.6% on
                                       total GDP growth, and that could be conservative. For the world’s top economy, already seeing a decent revival,
                                       and for Canadian exporters, not bad news at all.
 TOP GLOBAL
 OIL IMPORTERS
 AND EXPORTERS
                                       Some of Canada’s largest traditional trading partners make the top 10 list of global oil net-importers. Among them,
 (millions of barrels per day, 2013)   Japan is next to the US, totally dependent on external supply, and at $60 oil, set to save $50 billion this year.
 Net importers          Amount
                                       South Korea and Germany each save just under $30 billion on their national bill, and France is good for another
                                       $20 billion. These funds will clearly spill through the economy and have a magnified positive effect. It could hardly
 US                     8.8            come at a better time for Europe, and Canada should gain in export sales.
 China                  6.6
                                       Oil cost-savings are substantial across a broad swath of the emerging world. China depends on the rest of the
 Japan                  4.6
                                       world for 6.6 million barrels a day of crude oil. With prices down by over $30 per barrel this year, it is estimated
 India                  2.8            it will save a whopping $77 billion. India, next on the developing market list, looks to the rest of the world for
 South Korea            2.5            2.8 million barrels per day, generating equivalent savings of $33 billion annually. Savings aren’t miniscule in
                                       non-oil-producing South and Central America, and oil-producer Brazil still depends on external supply to fill
 Germany                2.4
                                       its economy’s needs. The list of oil-dependent emerging nations goes on and on.
 Net exporters          Amount

 Saudi Arabia           8.4            The benefits of these lower prices vary with the individual internal market structures. Many emerging nations
                                       subsidize local fuel prices, to shield citizens – mainly the poorer ones – from global price fluctuations. As such,
 Russia                 7.5            pass-through of savings to consumers won’t be as direct as for OECD nations in a good number of cases.
 Iraq                   3.1            However, it is interesting to note that several governments are taking advantage of low oil prices to reduce
                                       or eliminate subsidies. One way or another, emerging economies will benefit. Either their consumers will have
 United Arab            2.9
 Emirates                              more purchasing power, or their governments will have added fiscal flexibility, and consequently a lower overall
                                       risk profile – boosting their appetite for foreign goods and services.
 Kuwait                 2.6

 Nigeria                2.3            The bottom line? Canada’s energy sector service and equipment exporters are in for tough times, and cash flows
 Venezuela              1.8            for oil and gas exporters will tighten significantly. This is already beginning to spill red ink on Canada’s trade and
                                       fiscal statistics. However, Canada’s non-energy sector exporters should see a substantial boost. Look for stronger
 Sources: BP Statistical Review
          of World Energy, EDC
                                       demand growth for a whole range of Canadian products emanating from the advanced markets that are net oil
                                       importers and where lower oil prices translate directly to the gas pump. Emerging market oil importers will be a
                                       mixed bag, but in general exports to these destinations should see some lift this year. This will be modestly offset
                                       by declining demand from the big oil exporters. It is fair to say that on balance, the oil price swoon is a piece of
                                       very well-timed private market stimulus for the world economy.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                              10
1.0 GEF ExECUTIVE Summary

Table of Contents                 1.4 A Renminbi Hub for the Americas

1.0 GEF Executive Summary         On March 23rd, the grumpy Monday morning crowd had something to smile about: the renminbi (RMB) stepped
    1.1   Conquering              into Canada with the inauguration of the only RMB hub in the Americas, one more advance on its long march to
          the Chasm               internationalization. It all began with its first step into Hong Kong more than a decade ago. A long pause, and then
                                  a move into Southeast Asia in 2013. Then Europe in 2014. In each of these locations, the RMB’s arrival was both
    1.2 High-Wire Act,
                                  eagerly anticipated and ballyhooed. In Canada, it was also greeted with fanfare, but what is less certain is whether
        Euro-Style
                                  or not Canadian exporters and international investors will take action as they move forward. Should they?
    1.3 The Contrasting
        Impacts of Plummeting     It sure seems so. Consider the marvel of the RMB’s rise. Simply put, we are watching history in the making.
        Oil Prices                Within the span of the last five years, the RMB went from being virtually non-existent outside the People’s Republic
    1.4 A Renminbi Hub            to the fifth-most-used payments currency in the world as of last autumn. And there is little doubt that before long it
        for the Americas          will overtake the Japanese yen and be fast on the heels of the pound.
    1.5 Swimming Without
                                  By comparison, the only globally significant currencies to internationalize in the last half-century were the euro
        Shorts in a World Awash
                                  and the yen. And neither one is indicative of the RMB’s future prospects. In the euro’s case, the currencies
        in Liquidity
                                  that merged together were already hard currencies. As for the yen, it internationalized under very different
2.0 Country Risk Overviews        circumstances – we know that Tokyo’s global aspirations for the yen, and the rest of the world’s appetite for it,
                                  were measured from the outset.
3.0 Sector Overviews

4.0 Provincial Overviews          In contrast, Beijing has made it clear that it intends to transform the RMB into a global reserve currency.
                                  Moreover, China has arrived as an economic superpower and established robust trading relationships with every
                                  corner of the globe. Most will not be surprised, for instance, to hear that China is Asia’s largest trading partner.
                                  Fewer realize that China overtook Europe as Africa’s largest trading partner and fewer still are aware that China is
                                  set to overtake Europe as Latin America’s second-largest partner as early as 2016. It may or may not be well known,
                                  but here in Canada, China stands quite alone as our second-largest trading partner. In other words, the demand
                                  structure for RMB internationalization is global in scope, deeper than that of the yen, and alive and growing here
                                  in Canada.

                                  With these realities in mind, Canadian companies would do well to take notice, consider ways of leveraging the
                                  opportunities the RMB’s arrival presents to them, and take appropriate measures to mitigate the risks. Regarding
                                  risks, the story is clear. The establishment of RMB trading hubs across Asia and Europe is spurring our competitors
                                  in Australia, the UK, Germany, and South Korea, to name just a few, to experiment with RMB-denominated trade
                                  solutions. If Canadian companies are not willing to step out in the same way, they may find themselves having
                                  trouble gaining or maintaining their market share in China in the near- to mid-term.

                                  On the opportunities front, the benefits are equally apparent. By adopting the RMB as a payments currency,
                                  Canadian traders will have access to a wider universe of Chinese clients, and at the same time, improve their bottom
                                  lines. This is because the vast majority of China’s traders are SMEs, most of which do not have USD liquidity.
                                  As such, they need to rely on foreign exchange agents to access dollars, who in turn charge service fees and impose
                                  conversion ceilings. At the end of the day, this system creates bottlenecks and costs, not to mention manifold
                                  frustration. However, if payment was made in RMB, life would become a whole lot easier and cheaper for everyone
                                  involved – except, of course, the foreign exchange agent.

                                  Finally, timing is also important, especially for our exporters. The RMB is expected to continue its fall against the
                                  US dollar during 2015. China’s importers will be more receptive than ever to denomination of contracts in RMB.

                                  The bottom line? The RMB’s long march to internationalization is rewriting the rules of engagement and, in the
                                  process, creating new risks and opportunities for the global trading community. As the celebration of our new hub
                                  dies down, it’s time for Canadians to roll up our sleeves and make the most of it.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                     11
1.0 GEF ExECUTIVE Summary

Table of Contents               1.5 Swimming Without Shorts in a World Awash in Liquidity

1.0 GEF Executive Summary       Six years ago, a world that teetered on the edge of the worst economic plunge since the Depression was arguably
    1.1   Conquering            rescued by a wave of massive and unprecedented coordinated public stimulus measures. Among other things,
          the Chasm             central bankers of the world opened the floodgates to a surge of liquidity that would help carry a panicking global
                                economy to the shores of relative safety. One unintended side effect of quantitative easing (QE) saw investment cash
    1.2 High-Wire Act,
                                flood out of safe assets and into a number of riskier ones.
        Euro-Style
    1.3 The Contrasting         This never-ending search for yield helped bid up the price of emerging market sovereign and commercial debt.
        Impacts of Plummeting   Currency forecasters were forced to abandon their traditional models, or at least substantially up their “speculation”
        Oil Prices              components, in the face of a reinvigorated carry trade. Global equity markets began their ascent to new peaks.
    1.4   A Renminbi Hub        And copper’s 123% surge in 2009, viewed against a completely stagnant global economy, prompted calls to strip
          for the Americas      the red metal of its honorary doctorate in economics, so bestowed for its past ability to predict global growth cycles.
    1.5 Swimming Without
                                But if, as the saying goes, a rising tide raises all boats, then (as Warren Buffet likes to remind us) it’s only when
        Shorts in a World
                                the tide goes out that we see who was swimming without shorts. The eventual net reduction in aggregate global
        Awash in Liquidity
                                liquidity means that there will, at some point, be less money available for everyone. And while there will be winners
2.0 Country Risk Overviews      and losers, some losers will lose more than others.
3.0 Sector Overviews
                                In emerging markets, while capital inflows tumbled almost 20% last year, and another stressful year is expected
4.0 Provincial Overviews        in 2015, some did take advantage of the high tides to boost competitiveness, make labour markets more flexible
                                and improve the efficiency of public institutions – a divergence highlighted by the effects of the taper tantrum.
                                So the real impact on emerging markets will be the return of risk differentiation within the emerging market class.

                                While this is a normal process that markets have to endure every few years, the real concern is more around the
                                absurd extreme of that lack of risk differentiation. QE didn’t simply encourage investors to explore traditional
                                corporate and sovereign risk. Given the flood of money chasing somewhat limited assets, securing a decent return
                                meant venturing further along the risk continuum. This prompted investors to embrace a host of higher-risk assets,
                                at increasingly declining returns – returns that may not be adequately compensating them for the risks assumed.

                                The consequences of these ultra-loose monetary policy distortions? At one point, investors were offered less than
                                250bps for assuming Gabon sovereign risk over US Treasury risk. US junk bond issuances have soared since 2009,
                                and prices for high-yield corporate debt tested historical peaks. Last year, we had more than $20 billion go into
                                subprime auto asset-backed securities. Subprime ABS. And once we ran out of places to stash our cash, we began
                                betting on the weather. Investors snapped up $8.1 billion worth of catastrophe bonds last year, most of which went
                                to pension funds and other large institutional investors. Even in Germany, a country not typically known for bubbly
                                behaviour, demand for investment properties has heated up, pushing the price of new-builds up more than 25%
                                since July 2009.

                                However, in a world of negative interest rates, such probability-weighted expected loss may be a reasonable
                                alternative to the certainty of costs charged on deposits. But, what happens when some of these recent entrants
                                into the sovereign bond market struggle to service foreign currency debt, as local currencies depreciate?
                                Could pension funds be in for a surprise the next time a major hurricane strikes a small island economy?

                                The bottom line? Perhaps the threat of the imminent economic plunge was so catastrophic back in 2009 that
                                officials were forced to focus on that. But if, as some say, 2008-09 was a function of the recession we didn’t have
                                in 2000-01, then what would the bursting of some of these bubbles look like over the medium term? The cash
                                we pumped into the system this time around makes Greenspan look like a hawk. One can only hope that national
                                regulators have learned more from the last seven years than markets have.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                  12
2.0 COUNTRY RISK Overviews

Table of Contents

1.0 GEF Executive Summary

2.0 Country Risk Overviews

    2.1 Brazil

    2.2 China

    2.3 France

    2.4 Germany

    2.5 India

    2.6 Japan

    2.7 Mexico

    2.8 Russia

    2.9 South Africa

    2.10 United Kingdom

    2.11 United States

3.0 Sector Overviews

4.0 Provincial Overviews

GLOBAL EXPORT FORECAST SPRING 2015   13
2.0 COUNTRY RISK Overviews

 Table of Contents                     Glossary of Terms

 1.0 GEF Executive Summary
                                       Short-Term Commercial
 2.0 Country Risk Overviews
                                       Risk Rating
      2.1 Brazil
                                       Average default rate on credit commitments of one year or less on the part of commercial obligors in a country.
      2.2 China

      2.3 France
                                       Payment Experience

      2.4 Germany                      Measured by the number and size of EDC claims experienced in a particular country, over a period of a year,
                                       relative to EDC’s business volume growth.
      2.5 India
                                       •    Positive: The number of claims, or the amounts claimed have decreased in proportion to EDC business
      2.6 Japan                             volume growth.
      2.7 Mexico                       •    Neutral: The number of claims, or the amounts claimed have remained unchanged in proportion to EDC
      2.8 Russia                            business volume growth.

      2.9 South Africa                 •    Negative: The number of claims, or the amounts claimed have increased in proportion to EDC business
                                            volume growth.
      2.10 United Kingdom

      2.11 United States               Medium-Long-Term Commercial
 3.0 Sector Overviews
                                       Commercial Country Ceiling
 4.0 Provincial Overviews
                                       The Commercial Country Ceiling (CCC) is meant to represent the best possible rating that can be assigned
                                       to commercial obligors domiciled in a country. The CCC is impacted by the Sovereign Probability of Default,
                                       political risks (transfer and inconvertibility, political violence, expropriation) and other mitigating or
Risk Rating Lexicon
                                       exacerbating factors.
                      Low
                      Low-Medium
                                       Expropriation
                      Medium           The likelihood, over the medium to long term of government action (e.g. outright seizure of an asset/
                      Medium-High      investment or less pronounced interference such as unjustified non-renewal of required permits or licences) or
                      High             weak governance conditions (e.g. a weak rule of law or high levels of corruption) having a significant impact on
                                       a country’s commercial environment.
                      Prohibitive
                      No Information   Transfer and Conversion

                                       The likelihood, over the medium to long term, of a government imposing conversion or transfer restrictions
Payment Experience Lexicon
                                       that significantly affect the commercial environment. Conversion restrictions could include measures that
                      Positive         prevent companies from converting local currency to hard currency, while transfer restrictions would be
                      Neutral          measures that inhibit the transfer of said hard currency out of the host country by legal means.
                      Negative         Political Violence

                                       The likelihood, over the medium to long term, of an act of political violence occurring in a country that
                                       significantly impacts the country’s commercial environment. Political violence events can include acts of war
                                       (declared or undeclared), insurrection, revolution, rebellion, riot, terrorism, sabotage, civil disturbance, or other
                                       such violent acts that are politically motivated.

                                       Sovereign

                                       The Sovereign Probability of Default (SPD) measures the ability and willingness of a sovereign to honour its
                                       financial obligations over the medium to long term.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                             14
Economic and Political Intelligence Centre                                                                                                              Spring 2015

     Brazil RISK Overviews
2.0 COUNTRY

Table of Contents
                                      2.1 Brazil

1.0 GEF Executive Summary
     Short-Term CommercialShort-Term Commercial                                                     Current Account and Economic
2.0 Country Risk Overviews                                                                          Growth
     Risk Rating                      Risk Rating
                                    Payment Experience
    2.1 Brazil                        Payment Experience                                                                  2013     2014          2015        2016
                                                                                                                    4
     In order
    2.2 China to normalize its highly  overvalued
                                  In order  to normalizecurrency     and
                                                            its highly     increasecurrency
                                                                        overvalued                                                                                    2
     competiveness,
    2.3 France        the Central Bank   is  attempting     to  reverse
                                  and increase competiveness, the central   ineffective
                                                                                  bank is                           2
     monetary policies. Althoughattempting
                                    the Brazilian     real  is  expected      to normalize

                                                                                                    % of GDP
                                               to reverse ineffective monetary       policies.
    2.4 Germany
     over  the coming months, it will  experience       considerable      downward                                  0                                                 0
                                  Although   the Brazilian    real is expected   to normalize

                                                                                                                                                                               %
     pressures
    2.5 India in H1-2015 due toover bearish   economic
                                       the coming    months,activity    and as theconsiderable
                                                                it will experience
     “Lava-Jato” scandal spreadsdownward
                                    beyond Petrobras.
                                               pressures in That
                                                              H1-2015said,duea high   level of
                                                                               to bearish                       -2
    2.6 Japan
     foreign exchange reserves continue
                                  economicto    resultand
                                              activity   in as
                                                             overall    benign liquidity
                                                                the “Lava-Jato”     scandal                                                                           -2
                                  spreads beyond    Petrobras.    That said,   a high level                     -4
     conditions
    2.7 Mexico for the commercial     sector.  Sweeping        reforms    affecting     the of
     business sector are unlikely,foreign exchangeshould
                                    but investors      reservesexpect
                                                                 continuemoderate
                                                                             to result inpolicy
                                                                                          overall              Current Account Balance
    2.8 Russia                    benign liquidity conditions for the commercial sector.
     shifts over the next 12 months.                                                                           Real GDP Growth
                              Sweeping reforms affecting the business sector are
    2.9 South Africa
                              unlikely, but investors should expect moderate policy
     Medium-Long
    2.10 United KingdomTerm Commercial
                              shifts over the next 12 months.                                       World Bank Governance Indicators
                                                                                                    100
    2.11 United States
     Commercial Country Ceiling                         Expropriation
3.0 Sector Overviews
                                      Medium-Long-Term Commercial

     Transfer Overviews
               and Conversion    Commercial Country
                                                 Political Ceiling
                                                           Violence                                                      55                             55            52
4.0 Provincial                                                                                                                        51
                                 Expropriation                                                       50
     The commercial environment     is characterized
                                 Transfer             by a persistently strong
                                           and Conversion
                                 Political
     banking sector, lack of financial     Violence and low dependence on
                                       dollarization,
     foreign borrowing. The government will continue efforts to reverse
                                 The commercial environment is characterized by a                       0
     inflation and tepid growth, as well as address poor infrastructure, but
                                 persistently strong banking sector, lack of financial                              Control of   Government       Regulatory    Rule of Law
     investment activity remainsdollarization,
                                  bearish. Additionally,        reformsonand
                                                 and low dependence             efforts
                                                                           foreign       to
                                                                                    borrowing.                      Corruption   effectiveness     Quality
     stimulate the economy may Thebe over-shadowed         by  the on-going
                                      government will continue efforts to reverse inflation
     corruption investigations relating  to growth,
                                 and tepid  Petrobras.     While
                                                     as well       Brazil
                                                              as address    is infrastructure,
                                                                         poor  expected             The percentile rank term ranges from 0 (lowest rank)
     to be a net-benefactor of weaker   oil prices,
                                 but investment       MLT
                                                  activity    investment
                                                           remains  bearish.in  pre-salt
                                                                             Additionally,          to 100 (highest rank).
     oil exploration and production  mayand
                                 reforms    be efforts
                                                impacted     shouldtheprices
                                                       to stimulate     economyfallmay
                                                                                    close
                                                                                        be
     to USD 45 a barrel.         over-shadowed by the on going corruption investigations            Public Finances
                                  relating to Petrobras. While Brazil is expected to be a net
                                                                                                               5
     Sovereign                    benefactor of weaker oil prices, medium to long-term                                                                                     50
                                  investment in pre-salt oil exploration and production may
                                  be impacted should prices fall close to USD 45 a barrel.
     Sovereign Probability of Default
                                                                                                               0                                                           0
     Although increasing in levels,  external debt metrics remain relatively
                                 Sovereign
     healthy, and financing needs will continue to be mostly absorbed by the
     domestic market. Foreign currency-denominated
                                 Sovereign Probabilitydebt         is a very small
                                                              of Default                                                                                                   -50
     portion of total government debt and, as a result, exchange rate risk is                                  -5
     minimal. In the aftermath ofAlthough   increasing
                                  the elections         in levels,2014,
                                                    in October     external debtismetrics
                                                                          there                                         2013      2014           2015          2016
                                 remain   relatively healthy, and
     tremendous pressure to implement much-needed reforms in order financing  needs
                                                                                  to will
                                 continue to be mostly absorbed by the domestic
     reverse slow growth and investment activity, as well as improve fiscal                                    Fiscal Balance (% of GDP)
                                 market. Foreign currency-denominated debt is a
     management. However, reforms will face increasing roadblocks as
                                 very small portion of total government debt and,                              Public Debt (% of GDP)
     efforts meet strong congressional   opposition,
                                 as a result, exchangeandrate will
                                                              risk isbeminimal.
                                                                        made more
                                                                                In the
     challenging with the political fall out  of the  “Lava-Jato”      scandal.
                                 aftermath of the elections in October 2014, there                  Sources: EDC Economics, World Bank,
                                      is tremendous pressure to implement much-needed               Haver Analytics, EIU
                                      reforms in order to reverse slow growth and
                                      investment activity, as well as improve fiscal
                                      management. However, reforms will face increasing
                                      roadblocks as efforts meet strong congressional
                                      opposition, and will be made more challenging
                                      with the political fall-out of the Lava-Jato scandal.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                                             15
Economic and Political Intelligence Centre                                                                                                           Spring 2015

     China RISK Overviews
2.0 COUNTRY

Table of Contents
                                     2.2 China

1.0 GEF Executive Summary
     Short-Term CommercialShort-Term Commercial                                                  Current Account and Economic
2.0 Country Risk Overviews                                                                       Growth
     Risk Rating                     Risk Rating
                                   Payment Experience
    2.1 Brazil                       Payment Experience                                                                2013     2014          2015        2016
                                                                                                                                                                   8
     Residential
    2.2 China     property, small-Residential
                                    and medium-sized         enterprises
                                                property, small-           and
                                                                  and medium-sized
     state-owned   banks  could come   under    stress  as growth    eases   a notch.                            2
    2.3 France                     enterprises and state-owned banks could      come                                                                               6
     Ample foreign exchange reserves
                                   under stress as growth eases a notch. Amplesuggest
                                           and   China’s   net   creditor  status

                                                                                                 % of GDP
                                                                                    foreign
    2.4  Germany
     currency  stability. Althoughexchange
                                    the CB reserves
                                              loweredand theChina’s
                                                               reservenetrequirement
                                                                          creditor status                                                                          4

                                                                                                                                                                            %
     ratio recently, an easing in interest  rates may
                                   suggest currency       be around
                                                      stability.       thethe
                                                                 Although   corner   inbank
                                                                               central  an                       1
    2.5  India
     attempt to help spur growth,lowered
                                    whichthe could   leadrequirement
                                                 reserve   to some near-term
                                                                       ratio recently,                                                                             2
    2.6 Japan
     currency weakening.           an easing in interest rates may be around the corner
                                     in an attempt to help spur growth, which could lead                         0                                                 0
    2.7 Mexico
                                     to some near-term currency weakening.                                  Current Account Balance
    2.8 Russia
                                                                                                            Real GDP Growth
    2.9 South Africa                 Medium-Long-Term Commercial
     Medium-Long
    2.10 United KingdomTerm      Commercial                                                      World Bank Governance Indicators
                                Commercial Country Ceiling
                                                                                                 100
     Commercial Country Ceiling ExpropriationExpropriation
    2.11 United States
                                Transfer and Conversion
3.0 Sector Overviews
                                Political Violence
     Transfer Overviews
4.0 Provincial and Conversion                         Political Violence                                                          54
                                  Current policy goals include economic reform                    50                  47
                                                                                                                                                     43            40
     Current policy goals includeofeconomic
                                     state-owned   enterprises,
                                                 reform         opening up to
                                                          of state-owned      private
                                                                            enterprises,
                                  competition  and  foreign ownership,
     opening up to private competition and foreign ownership, land      land ownership,
                                  and resource pricing. An export recovery is expected
     ownership, and resource pricing.    An export recovery is expected to play
                                  to play out going forward. Shifting growth inland                  0
     out going forward. Shifting will
                                  growth    inland will open up new opportunities
                                       open up new opportunities for transportation                              Control of   Government       Regulatory    Rule of Law
     for transportation and distribution  networks.    Localized
                                  and distribution networks.        protests
                                                               Localized      over
                                                                         protests over                           Corruption   effectiveness     Quality
     corruption, the environment,corruption,
                                    and land the
                                               ownership     will continue.
                                                   environment, and land ownership
                                  will continue.                                                 The percentile rank term ranges from 0 (lowest rank)
                                                                                                 to 100 (highest rank).

                                     Sovereign                                                   Public Finances
                                                                                                                                                                       20
                                     Sovereign Probability of Default
     Sovereign
                                                                                                            2
                                  China appears resilient to external shocks.                                                                                           10
     Sovereign Probability of Default
                                  Despite a low external debt burden, the sovereign
                                  could be saddled with contingent liabilities linked                       0                                                           0
     China appears resilient to external   shocks. Despite
                                  to local government          a low external
                                                        debts, state-owned       debt
                                                                            enterprises,
     burden, the sovereign couldandbe saddled
                                       state bankwith  contingentloans.
                                                  non-performing     liabilities linked
                                                                           The government                                                                               -10
     to local government debts, state-owned
                                  will implemententerprises,    and packages
                                                  modest spending     state-bankand credit                  -2
                                  easing to support
     non-performing loans. The government        willgrowth  in ordermodest
                                                       implement       to manage  these risks.
                                                                               spending                                                                                 -20
     packages and credit easing to support growth in order to manage these                                           2013      2014           2015          2016
     risks.
                                                                                                            Fiscal Balance (% of GDP)
                                                                                                            Public Debt (% of GDP)

                                                                                                 Sources: EDC Economics, World Bank,
                                                                                                 Haver Analytics, EIU

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                                          16
Economic and Political Intelligence Centre                                                                                                            Spring 2015

     France RISK Overviews
2.0 COUNTRY

Table of Contents
                                      2.3 France

1.0 GEF Executive Summary
     Short-Term CommercialShort-Term Commercial                                                  Current Account and Economic
2.0 Country Risk Overviews                                                                       Growth
     Risk Rating                     Risk Rating
                                   Payment Experience
    2.1 Brazil                        Payment Experience                                                                2013     2014          2015        2016

     TheChina
    2.2  French    economy exitedThe
                                   recession    in the third
                                       French economy            quarter
                                                             exited         of 2014,
                                                                    recession  in the but                        1
                                                                                                                                                                    1
     crawled
    2.3 France toward  year-end, posting   annual   GDP      growth     of
                                  third quarter of 2014, but crawled toward0.4  per year-end,
                                                                                      cent for
     the third consecutive year. The   outlook    is  expected     to  improve     but

                                                                                                 % of GDP
                                  posting annual GDP growth of 0.4% for the
    2.4 Germany
     remain   lackluster, underperforming    the wider
                                  third consecutive    year.EUTheand   euroisarea
                                                                   outlook          averages
                                                                               expected                          0                                                  0

                                                                                                                                                                             %
     with  growth
    2.5 India       exceeding one per
                                  to   cent
                                     improve only
                                               but   as of
                                                   remain    2016.   The
                                                              lacklustre,   lack  of
                                                                          underperforming
     progress on structural reforms
                                  the is  evident
                                      wider  EU andin the
                                                        Eurorising   trade deficit
                                                               area averages           and
                                                                               with growth
    2.6 Japan                                                                                                    -1
     stubbornly high unemployment;       household
                                  exceeding   1% onlyconsumption
                                                         as of 2016. The   and
                                                                             lackbusiness
                                                                                   of progress                                                                      -1
     investment
    2.7                           on structural
        Mexico remain weak. Lending              reforms
                                           remains     tightis evident
                                                               and theintopthe French
                                                                               rising trade
     banks have been downgraded   deficit and stubbornly
                                     because    of exposure  high to
                                                                   unemployment;
                                                                      the troubledhousehold                 Current Account Balance
    2.8 Russia                    consumption and business investment remain weak.
     countries of peripheral Europe.                                                                        Real GDP Growth
                              Lending remains tight and the top French banks have
    2.9 South Africa
                              been downgraded because of exposure to the troubled
     Medium-Long
    2.10 United KingdomTerm Commercial
                              countries of Peripheral Europe.                                    World Bank Governance Indicators
                                                                                                 100                   88          89                               88
    2.11 United States                                                                                                                                85
     Commercial    Country Ceiling                     Expropriation
3.0 Sector Overviews
                                      Medium-Long-Term Commercial

     Transfer Overviews
4.0 Provincial and Conversion                  Political Ceiling
                                Commercial Country       Violence
                                Expropriation                                                     50
     France has a great number of highly successful
                                Transfer              world-class companies.
                                          and Conversion
     However, most are struggling  with the
                                Political   weak export demand that lingers
                                          Violence
     from the Eurozone crisis. The credit environment remains tight; however,
                                   France has a great number of highly successful
     increased liquidity throughout the euro area resulting from the European                        0
                                   world-class companies. However, most are struggling
     Central Bank’s quantitative with
                                    easing  program is expected to improve the
                                         the weak export demand that lingers from the
                                                                                                                  Control of
                                                                                                                  Corruption
                                                                                                                               Government
                                                                                                                               effectiveness
                                                                                                                                                Regulatory
                                                                                                                                                 Quality
                                                                                                                                                              Rule of Law

     credit transmission mechanism.Eurozone French
                                         The           government
                                              crisis. The              has shown
                                                          credit environment       little
                                                                              remains
     interest in the types of structural  reforms increased
                                   tight; however,  that couldliquidity
                                                                 improve   businessthe
                                                                        throughout               The percentile rank term ranges from 0 (lowest rank)
     competitiveness.              euro area resulting from the European Central                 to 100 (highest rank).
                                      Bank’s quantitative easing program is expected
                                      to improve the credit transmission mechanism.              Public Finances
                                      The French government has shown little interest                       5                                                           100
     Sovereign                        in the types of structural reforms that could
                                      improve business competitiveness.
     Sovereign Probability of Default

                                      Sovereign                                                             0                                                            0
     France is expected to continue facing challenging public debt dynamics
     over the next two years. By Sovereign
                                   2017, government
                                               ProbabilitydebtofasDefault
                                                                    a share of GDP is
     expected to peak at almost 100 per cent, while the fiscal balance is
     projected to fall below the EU’s
                                  FranceMaastricht
                                          is expectedTreaty    threshold
                                                       to continue         of three per
                                                                    facing challenging                      -5                                                           -100
     cent of GDP. Deeper reforms  public  debt dynamics
                                     are urgently         overtothe
                                                     needed         next two
                                                                  balance  theyears.
                                                                                budget
                                  By  2017,  government   debt  as a share of  GDP                                    2013      2014           2015          2016
     and improve debt sustainability. There are few concrete plans for
     spending reductions; instead,is expected  to peak athas
                                     the government       almost   100%, while
                                                             promised           thetaxes
                                                                          to raise
                                  fiscal balance is projected to fall below the EU’s                        Fiscal Balance (% of GDP)
     on the wealthy and on business. Austerity plans have been put on hold
                                  Maastricht Treaty threshold of 3% of GDP.                                 Public Debt (% of GDP)
     for the next two years.      Deeper reforms are urgently needed to balance
                                      the budget and improve debt sustainability.                Sources: EDC Economics, World Bank,
                                      There are few concrete plans for spending                  Haver Analytics, EIU
                                      reductions; instead, the government has promised to
                                      raise taxes on the wealthy and on business. Austerity
                                      plans have been put on hold for the next two years.

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                                           17
Economic and Political Intelligence Centre                                                                                                    Spring 2015

     Germany
2.0 COUNTRY RISK Overviews

Table of Contents
                                     2.4 Germany

1.0 GEF Executive Summary
     Short-Term CommercialShort-Term Commercial                                              Current Account and Economic
2.0 Country Risk Overviews                                                                   Growth
     Risk Rating                    Risk Rating
                                  Payment Experience
    2.1 Brazil                       Payment Experience                                                        2013      2014          2015        2016

     Germany   is the safe haven of  Europeiswith    its healthy                                         8
                                                         haven of public
                                                                   Europefinances,
    2.2 China
                                  Germany       the safe                  with its                                                                          1.5
     large current
    2.3 France     account  surpluses,  and  highly   competitive   and dynamic
                                  healthy public finances, large current account                         6
     business sector. German GDP      growthandwas   weaker   than expected   in 2014,

                                                                                             % of GDP
                                  surpluses,       highly competitive and dynamic
    2.4
     andGermany
         the forecast for this yearbusiness
                                    is a slight  deceleration   to 1.3 per cent.
                                            sector. German GDP growth was weaker                                                                            1.0

                                                                                                                                                                     %
                                                                                                         4
    2.5 India                        than expected in 2014, and the forecast for this
                                     year is a slight deceleration to 1.3%.                              2                                                  0.5
    2.6 Japan
                                                                                                         0                                                  0.0
    2.7 Mexico
                                     Medium-Long-Term Commercial
                                                                                                        Current Account Balance
    2.8 Russia
                              Commercial Country Ceiling                                                Real GDP Growth
    2.9 South Africa          Expropriation
     Medium-Long       Term   Transfer and Conversion
                            Commercial                                                       World Bank Governance Indicators
    2.10 United Kingdom
                              Political Violence                                             100                            91
    2.11 United States                                                                                        94                              93            92
     Commercial    Country Ceiling                   Expropriation
                                 Business confidence and export demand is
3.0 Sector Overviews             recovering as the Eurozone crisis wanes.
     Transfer  and Conversion
4.0 Provincial Overviews         High levels of productivity    and efficiency may
                                                    Political Violence
                                 suffer as German wages are rising faster than                50
                                 those demand
     Business confidence and export     of the restisofrecovering
                                                         the Eurozone, butEurozone
                                                                   as the  it will take
                                 many   years for   Germany’s   huge competitive
     crisis wanes. High levels of productivity and efficiency may suffer as
                                 advantage
     German wages are rising faster          to erode.
                                      than those     of the rest of the Eurozone, but
      it will take many years for Germany’s huge competitive advantage to                        0
      erode.                      Sovereign
                                                                                                          Control of
                                                                                                          Corruption
                                                                                                                       Government
                                                                                                                       effectiveness
                                                                                                                                        Regulatory
                                                                                                                                         Quality
                                                                                                                                                      Rule of Law

                                     Sovereign Probability of Default
                                                                                             The percentile rank term ranges from 0 (lowest rank)
                                                                                             to 100 (highest rank).
                                  Germany’s debt as a percentage of GDP remains
                                  high at almost 80%. However, the increase recorded
                                  during the global financial and Euro area debt crises
                                                                                             Public Finances
                                  was lower than that of many other major developed                                                                          80
     Sovereign                    market economies, and the trajectory is favourable.             0.6
                                  Furthermore, Germany’s low funding costs will                                                                                  60
     Sovereign Probability of Default
                                  ensure that the debt servicing requirements remain
                                  affordable. Over the long term, solutions to the                0.4
                                                                                                                                                                 40
     Germany’s debt as a percentage      of GDP
                                  Eurozone    crisis,remains  high at almost
                                                      such as mutualized        80 per
                                                                           debt and fiscal
     cent. However, the increasetransfers,
                                   recordedallduring
                                                 requirethe  global tofinancial
                                                          Germany                and
                                                                        take on more              0.2                                                            20
     Euro area debt crises was lower     thanfor
                                  liabilities  that   of many other
                                                 its neighbours  to themajor
                                                                         south.developed
      market economies, and the trajectory is favourable. Furthermore,                            0.0                                                            0
      Germany’s low funding costs will ensure that the debt servicing                                        2013       2014           2015          2016
      requirements remain affordable. Over the long term, solutions to the
      Eurozone crisis, such as mutualized debt and fiscal transfers, all require
                                                                                                        Fiscal Balance (% of GDP)
      Germany to take on more liabilities for its neighbours to the south.
                                                                                                        Public Debt (% of GDP)

                                                                                             Sources: EDC Economics, World Bank,
                                                                                             Haver Analytics, EIU

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                                   18
Economic and Political Intelligence Centre                                                                                                           Spring 2015

     India RISK Overviews
2.0 COUNTRY

Table of Contents
                                     2.5 India

1.0 GEF Executive Summary
     Short-Term CommercialShort-Term Commercial                                                  Current Account and Economic
2.0 Country Risk Overviews                                                                       Growth
     Risk Rating                     Risk Rating
                                   Payment Experience
    2.1 Brazil                       Payment Experience                                                                2013     2014          2015        2016

     Inflationary
    2.2 China       pressures have Inflationary
                                    eased, although       sizable
                                                  pressures          fiscal although
                                                              have eased,   shortfalls  leave
                                                                                     sizable                     2
                                                                                                                                                                   5
     little room
    2.3 France    to stimulate growth.    Foreign    exchange       reserves   have
                                    fiscal shortfalls leave little room to stimulate growth.
     recovered somewhat, following        a period    of reserves
                                                          investorhaveportfolio

                                                                                                 % of GDP
                                    Foreign  exchange                    recovered somewhat,
    2.4   Germany Companies servicing legitimate foreign debts should have
     rebalancing.                                                                                                0                                                 0
                                    following a period of investor portfolio rebalancing.

                                                                                                                                                                            %
     little
    2.5     difficulty meeting theirCompanies
          India                       obligations.     Currency
                                                  servicing          volatility
                                                             legitimate  foreignwill
                                                                                 debtspersist
                                                                                       should
     through 2015.                  have little difficulty meeting their obligations. Currency
    2.6 Japan                                                                                                -2                                                    -5
                                     volatility will persist through 2015.
    2.7 Mexico
                                                                                                            Current Account Balance
    2.8 Russia                       Medium-Long-Term Commercial
                                                                                                            Real GDP Growth
    2.9 South Africa            Commercial Country Ceiling
     Medium-Long       Term     Expropriation
                            Commercial                                                           World Bank Governance Indicators
    2.10 United Kingdom
                                Transfer and Conversion                                          100
     Commercial Country Ceiling Political Violence
    2.11 United States                         Expropriation
3.0 Sector Overviews              Business investment, including foreign direct
     Transfer Overviews
4.0 Provincial and Conversion     investment, is expected  to Violence
                                                    Political rise due to a sense of                                                                               53
                                  improved policy decisiveness and fewer policy flip-flops        50                              47
                                  on regulatory  issues now  that the government     holds                            36                             34
     Business investment, including    foreign direct    investment,    is expected       to a
     rise due to a sense of improved policy decisiveness and fewer policy arise
                                  strong majority.  Nonetheless,  challenges  may   still
                                  in some
     flip-flops on regulatory issues  nowsouthern
                                           that the and   eastern states.
                                                      government     holdsPolitical violence
                                                                             a strong
                                  remains location-centric.
     majority. Nonetheless, challenges may still arise in some southern and                          0
     eastern states. Political violence remains location-centric.                                                Control of
                                                                                                                 Corruption
                                                                                                                              Government
                                                                                                                              effectiveness
                                                                                                                                               Regulatory
                                                                                                                                                Quality
                                                                                                                                                             Rule of Law

                                     Sovereign
                                                                                                 The percentile rank term ranges from 0 (lowest rank)
                                     Sovereign Probability of Default                            to 100 (highest rank).
                                  Fiscal consolidation is anticipated in coming years
                                  under Prime Minister Narendra Modi. Debt levels
                                                                                                 Public Finances
                                  are much higher for India than for economies with                         5                                                          50
     Sovereign                    similar ratings, but the strong medium- to long-term
                                  growth projection will afford the government some
     Sovereign Probability of Default
                                  policy space. External sovereign debt obligations are
                                  quite small.                                                              0                                                           0
     Fiscal consolidation is anticipated in coming years under Prime Minister
     Narendra Modi. Debt levels are much higher for India than for
     economies with similar ratings, but the strong medium- to long-term
     growth projection will afford the government some policy space.                                        -5                                                          -50
     External sovereign debt obligations are quite small.                                                            2013      2014           2015          2016

                                                                                                            Fiscal Balance (% of GDP)
                                                                                                            Public Debt (% of GDP)

                                                                                                 Sources: EDC Economics, World Bank,
                                                                                                 Haver Analytics, EIU

GLOBAL EXPORT FORECAST SPRING 2015                                                                                                                                          19
You can also read
NEXT SLIDES ... Cancel