GOING SEPARATE WAYS Global and Asia-Pacific Economic Outlook - July 2020 - Euler Hermes
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GOING SEPARATE WAYS Allianz Research Global and Asia-Pacific Economic Outlook July 2020 © Copyright Allianz
COVID-19: THE PHASE 2 MARATHON
Fresh virus outbreak –
back to stage 1
Stage 2: Gradual
Stage 4: Habemus
opening of national
• Expand healthcare capacity • Bans on large events & border vaccine!
(treatment, testing, monitoring) economies restrictions to be eased as
• Fiscal / monetary safety nets to pandemics around the globe
reduce downside risks & cushion • Mass testing, tracking & isolation ends • Global rollout allows for return to
economic blow of new cases • Ongoing fiscal & monetary policy normalcy without border
• Ongoing targeted confinement support aimed at providing restrictions, testing & bans on
measures incl. border restrictions tailwind to rebound large events
& event bans • Policy support can be gradually
• Policy to focus on boosting withdrawn
economic recovery prospects
Stage 1: Full Stage 3: Global
lockdowns to economy getting
'flatten the curve' back on track
Remember we are here!
Sources: OECD, Allianz Research framework from March 2020
© Copyright Allianz 2
PHASE 2 WILL BE DARWINIAN
Retail stores visits, daily* Manufacturing vs Services PMI, above 50 means expansion
Germany - Feb France - Feb
20 55
Pre-crisis level UK - Feb
Italy - Feb UK - June
0 50 Spain - Feb
US - Feb
Germany - June
-20 45 Japan - Feb France - June
Japan - June
-40 40 US - May US - Mar
Germany - Mar
Services PMI
-60 35 Germany - May UK - Mar
Japan - Mar
-80 UK - May France - May
30 Japan - May France - Mar
Spain - May Italy - May
-100 25 US - April
02/2020 03/2020 04/2020 05/2020 06/2020 Spain - Mar
Japan - April
20
Germany Retail, Filtered France Retail, Filtered Germany - April
Italy - Mar
15
Italy Retail, Filtered UK Retail, Filtered UK - April
10 Italy - April France - April
US Retail, Filtered Japan Retail, Filtered
Spain - April
Spain Retail, Filtered 5
25 30 35 40 45 50 55
*Daily Google mobility data for „Retail“, adjusted for weekends and holidays
, filtered trend Manufacturing PMI
Sources: Google, Allianz Research
Sources: Markit, Allianz Research
Retail stores visits are slowly recovering in line with the An unprecedented shock in the services sector with the
deconfinement strategies but initial conditions and trough being reached in April. Some countries recover
lockdown stringency will push for asymmetric faster (Germany, US) but globally the index is plateauing
recoveries. below pre-crisis levels.
© Copyright Allianz 3NEW WAVELETS: LIGHT AND LOCALIZED LOCKDOWNS
De-confining: managing the effective Stringency indices Daily number of new Covid-19 cases (as of
reproduction rate 70,000 5 July 2020)
(bubble size is latest available stringency index) 4.0 90
20
60,000
Change in average stringency index, June vs. May
3.5 80
KOR
10 50,000
3.0 70
CHN
40,000
GBR
60
0
USA 2.5
DNK BRA 30,000
RUS
IDN
IND ZAF
50
-10 DEU 2.0 20,000
NLD MEX
FRA
CZE
JPN
40
SGP TUR AUT
1.5 International 10,000
-20 ITA NOR 30
BEL
ESP
travel restrictions 0
De-confining 1.0 20
POL even though
Overall 22-01-20 22-03-20 22-05-20
-30 epidemic may
not be clearly 0.5 stringency index 10 Europe Africa
under control
(rhs) Middle-East North America
-40 0.0 0 Latin America India
0.8 0.9 1.0 1.1 1.2 1.3 1.4
Average effective R0 in June
01-2020 03-2020 05-2020 07-2020 APAC excl. India
Sources: Various, Euler Hermes, Allianz Research Sources: Oxford University, Euler Hermes, Allianz Research Sources: John Hopkins University, Euler Hermes, Allianz Research
Many countries still battle with too high It is likely to be long before all Hot spots include Latin America, the
R0. Cluster management and physical containment measures are removed. United States, United Kingdom and India
distancing measures could help cap R0 Stringency indices have been faster to
for countries with previous lockdowns rise than decline, particularly for
© Copyright Allianz international travel. 4GLOBAL ECONOMY: NO RETURN TO PRE-CRISIS
LEVELS BEFORE END OF 2021
Real GDP growth, % 110 Global GDP growth, index
World GDP level, Q4 2019 = 100
2017 2018 2019 2020 2021
World GDP growth 3.3 3.1 2.5 -4.7 4.8 105
United States 2.4 2.9 2.3 -5.3 3.7
Latin America 1.0 1.0 0.1 -6.8 3.1
Brazil 1.3 1.3 1.1 -7.0 3.0 100
United Kingdom 1.8 1.3 1.4 -13.3 5.0
Eurozone members 2.7 1.9 1.3 -9.0 6.0
Germany 2.8 1.5 0.6 -7.0 4.5
95 Radical uncertainty on
France 2.4 1.8 1.5 -10.8 7.4
epidemiological
Italy 1.7 0.7 0.3 -11.2 6.6
Spain 2.9 2.4 2.0 -11.0 7.0
development, U.S. election,
policy cliff-edge effect
Russia 1.8 2.5 1.3 -5.2 3.0 90 World GDP, Q1'19 = 100
Turkey 7.5 2.8 0.9 -4.7 4.2
pre-Covid-19 World GDP path
Asia-Pacific 5.2 4.7 4.2 -1.3 5.9
Q4 2019 World GDP level
China 6.9 6.7 6.1 1.5 7.6
Japan 2.2 0.3 0.7 -5.7 2.2 85
India 7.0 6.1 4.7 -3.6 7.5 2019-01 2019-07 2020-01 2020-07 2021-01 2021-07 2022-01
Sources: National sources, Euler Hermes, Allianz Research
Middle East 1.4 0.9 0.3 -6.3 2.2
Saudi Arabia -0.7 2.4 0.3 -4.0 2.0
Africa 3.1 2.7 1.9 -3.1 4.0
Which economies will drive the global recovery? United
South Africa 1.4 0.8 0.3 -7.8 5.4 States, Germany and China (although a far cry compared
* Weights in glob al GDP at market price, 2019 to GFC). Who are the laggards? United Kingdom, France,
NB: fiscal year for India
Sources: National sources, Euler Hermes, Allianz Research Spain, Italy, vulnerable EM (e.g. Latin America, Turkey,
© Copyright Allianz South Africa, India) 5MONETARY BAZOOKA: UNPRECEDENTED BALANCE
SHEET EXPANSION, DIFFERENTIATED RETURNS
Central banks‘ balance sheets (% of GDP) Monetary impulse indices
Forecasts 20
ECB (lhs) BoE (lhs)
70 15
PBoC (lhs) FED (lhs)
60 10
50 5
40
0
30
-5
20
-10
10
-15 United States Eurozone
0 China Japan
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
-20 United Kingdom
09 10 11 12 13 14 15 16 17 18 19 20
Sources: Refinitiv, Allianz Research. Sources: National central banks, Euler Hermes, Allianz Research
As monetary policy continues to backstop sovereign Monetary policy response to the Covid-19 crisis
and corporate bond markets to ensure favorable was strong across the world. Among major
refinancing conditions, the balance sheets of all economies, we estimate that the monetary impulse is
major central banks will continue to balloon in the largest in the U.S. Looking further ahead,
2020/21, heading towards 50% of GDP. regulators will need to care for their banking systems.
© Copyright Allianz 6FISCAL BAZOOKA: PROMPT BUT UNEQUAL IN SIZE
AND MULTIPLIERS. MORE TO COME?
Direct fiscal spending (% of GDP) Effectiveness of automatic stabilizers one year after the shock
Social security contribution
Japan 140
Unemployment, housing and family benefits
USA 120 Direct taxes
Germany 100
China 80
60
France
40
UK
20
Italy
0
Finland
USA
Japan
Greece
Switzerland
Ireland
Germany
Slovenia
Italy
Portugal
Hungary
Belgium
Sweden
UK
Slovakia
France
Netherlands
Austria
Australia
Spain
Canada
Spain
Czechia
0.0% 5.0% 10.0% 15.0% 20.0%
Realized fiscal relief package
Announced fiscal spending NB: the degree to which a decline in market income is offset by automatic stabilizers one
year after the shock. A ratio of 100 implies that automatic stabilizers offset the shock to
Expected future recovery stimulus market income completely, leaving aggregate household disposable income unchanged
Sources: Various, National sources, Euler Hermes, Allianz Research Sources: OECD, Euler Hermes, Allianz Research
Emergency fiscal spending ranges from 3% of GDP to The size of automatic stabilizers will matter for the size
18%; the recovery stimulus effort will be a key differencing of the fiscal stimulus packages.
factor in the countries’ future trajectories. At the global level
© Copyright Allianz 7
USD10.4tn of fiscal stimulus has been announced.THE REAL SECOND WAVE: ZOMBIE JOBS WILL
RESTRAIN CONSUMERS FROM SPENDING
Expected loss of employment (% of sectoral employment) 45% Savings rate, % of gross disposable income
based on expected output loss by end 2021 40%
10% 35%
Germany France Spain Italy UK
5% 30% 28%
26% 25%
0% 24% 23%
25% 21% 22% 22%
21% 21%
-5% 19% 18% 18%
20% 16% 17%
-10%
15% 12%
-15%
10%
-20%
-25% 5%
Entertainement
Transport
Industry
Construction
Retail and Wholesale
Accomodation
0%
Belgium
France
EU 28
Italy
UK
Germany
Netherlands
Spain
Pre-lockdown During lockdown During deconfinement End-2020
Source: Allianz Research Sources: Eurostat, Allianz Research
In the 5 largest European countries, 9 million workers This will continue to feed into precautionary savings. We
(20% of those currently partially unemployed) still face an estimate savings rate to remain +6pp above pre-crisis levels
elevated risk of becoming unemployed in 2021 because at the end of 2020 which represents EUR370bn of excess
of the muted recovery. These “zombie jobs” require ad savings in the EU, or 2.5% of GDP
hoc policies to avoid postponed mass unemployment.
© Copyright Allianz 8THE OTHER REAL SECOND WAVE: A SURGE IN
GLOBAL INSOLVENCIES
Insolvency figures and forecasts EH Global Insolvency Index (yearly changes in %)
(selected countries) and contribution of regional indices
2007-2009 crisis 2020 Forecasts
# of years Changes
Last 2020 vs 2021 vs 2021 vs
with an CAGR over 2007- y/y ytd
point 2019 2020 2019
increase 2009
U.S. 3 45% 115% March 4% 4% 47% 7% 57%
Canada 0 - -14% April -61% -28% 15% 9% 25%
Brazil 1 25% -8% April -58% -22% 32% 10% 45%
Germany 2 6% 12% March -2% -4% 4% 8% 12%
France 3 11% 27% May -62% -36% 4% 20% 25%
United Kingdom 2 22% 48% March -11% -11% 8% 33% 43%
Italy 2 23% 52% 18% 8% 27%
Spain 3 76% 380% May -57% -57% 20% 17% 41%
The Netherlands 2 32% 74% May 6% 2% 29% 10% 42%
Russia 0 - -62% May -54% -15% 18% 5% 23%
Turkey 2 2% 4% April -1% 4% 22% 7% 31%
South Africa 3 11% 31% March -19% -6% 12% 7% 20%
China 2 12% 2% May 22% 10% 21% 16% 40%
Japan 2 9% 10% May -55% -1% 8% 5% 13%
Australia 2 16% 35% April -42% -18% 5% 5% 11%
South Korea 1 19% -13% May -53% -31% 14% -6% 6%
GLOBAL INDEX 3 16% 46% 17% 16% 35%
Sources: Euler Hermes, Allianz Research Sources: Euler Hermes, Allianz Research
Lockdowns of business courts, temporary policy measures The ending of temporary factors will lead to a massive trend
to support companies and temporary changes in insolvency reversal starting in Q3 or Q4 depending on countries. Our
regimes are pushing down official registrations of global insolvency index would surge by +35% by end of
bankruptcies for the short term – lowering the expectations 2021 i.e. +by 16% in annual average. Should policy relief
for©the full year 2020.
Copyright Allianz
be withdraw too fast the rises will be +5 to +10pp higher. 9MIND THE INVESTMENT CYCLE: CONFIDENCE MATTERS
Annual net savings by country, EURbn Total investment, y/y
20%
10%
0%
-10%
-20%
-30%
UK US China Germany
-40%
03-08
11-08
07-09
03-10
11-10
07-11
03-12
11-12
07-13
03-14
11-14
07-15
03-16
11-16
07-17
03-18
11-18
07-19
03-20
11-20
07-21
Sources: Eurostat, Euler Hermes, Allianz Research Sources: National sources, Euler Hermes, Allianz Research
Companies are in a position to increase their Public support to reduce companies’ fixed costs (lower
investments during the recovery phase. Increases in social contributions, lower corporate taxes and/or fiscal
net savings in 2020 are the highest in Italy, the UK and incentives to invest) will be key. Expanding the state
France. But this will be dependent on renewed guaranteed loan schemes into 2021 could also be
confidence in a lasting restart of growth in Europe. supportive for future company investment.
© Copyright Allianz 10ACCELERATING TREND IN ZOMBIFICATION OF
COMPANIES COULD WEIGH ON THE RECOVERY
Equity ratios % of total assets Non-financial corporations’ debt, % of GDP Non-financial corporations’ margins, % of
value added
60% 180% 2009 2019
50% EU-27 Germany France
160% Italy Belgium
50%
140%
40% 45%
120%
30% 100% 40%
80%
20% 35%
60%
10% 40%
20% 30%
0%
0%
Belgium
France
Austria
Portugal
Spain
Germany
Italy
25%
Sweden
Spain
Netherlands
Belgium
Norway
Japan
Finland
Germany
UK
US
France
China
Italy
Denmark
2008Q3
2016Q1
2007Q1
2007Q3
2008Q1
2009Q1
2009Q3
2015Q1
2015Q3
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
2019Q1
2019Q3
SME Large companies
Sources: Bank of France, Allianz Research Sources: BIS, Allianz Research Sources: Eurostat, Allianz Research
We find that more than 13,000 SMEs & MidCaps (7% of total) in the six biggest This coupled with already fragile company
Eurozone countries were classified zombies before Covid-19 crisis. Low equity margins increases the zombification of the
ratios for some companies has pushed them into high indebtedness since 2009, corporate sector.
which will continue to increase thanks to State Guaranteed Loans.
© Copyright Allianz 11TRADE: RETURN TO PRE-CRISIS LEVELS IN 2022/ 2023
30
Global trade growth, in volume terms and Medium-term trade in value terms (USDtn) Oil prices and EUR/USD
value (%, y/y)
15% Volume Price Value 25 100 1.30
10.1% 12.2%
10% 9.6% 2.5 90 1.25
7.5% Forecasts
20 2.5 2.1
3.3% 4.0% 8.0% 80
5% 3.0% 2.4% 5.5% 1.8 1.20
2.8% 1.9% 5.5% 4.2% 1.3% 4.1% 1.1 70
3.2% 15 1.15
0%
-2.0% 60
-1.6%
-5%
1.10
10 19.4 20.3 50
18.7
-15.0% 15.4 16.8 1.05
-10%
-10.8%
40
5
30 1.00
-15%
20 0.95
-20% 0
pre-crisis 2020 2021 2022 2023 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21
-19.9%
-25% Goods Travel and transport services Other services Brent Oil price (lhs) EUR/USD (rhs)
13 14 15 16 17 18 19e 20f 21f 22f 23f
Sources: Sources: IHS Markit, Allianz Research Sources: International Trade Center, Allianz Research Sources: Bloomberg, Euler Hermes, Allianz Research
Trade could plummet by -15% in Assumptions medium-term: reduced The oil and commodity price shock will
volume terms (-20% in value) due to US-China uncertainty but stable tariffs, lead to a negative price effect on trade
the Covid-19 shock on goods and – no immediate threat of massive in 2020. 2021 will see a return to 52.5
for the first time – on services. reshoring, air transport back to pre- after an average of 47 in 2020.
© Copyright Allianz crisis in 2023. 12TRADE AND RESHORING: TALKING THE TALK BUT
NOT WALKING THE WALK
Number of mentions of “supply chains” in the media Arguments in favor of reshoring Arguments against reshoring
2500 Resilience : Reshoring creates Social discontent: Growing social
resilience due to lower risks, and discontent could be incompatible
shorter lead times with reshoring, as it would entail
2000 high labor costs passed down to the
consumer
1500 Strategic sectors: Reshoring Risk assessment complexity:
specific supply chains for key Reshoring does not necessarily
strategic sectors such as the mean de-risking: it can also mean
1000 medical sector, similarly to the putting all your eggs in the same
military sector, could make sense basket, leading to excess
concentration
500
Flexibility: More local supply can Cost effectiveness and
also enhance agility, as companies incentives: Reshoring is hardly
0 can be more responsive to changes reversible for many sectors, or at a
92 94 95 97 99 00 02 04 05 07 09 10 12 14 15 17 19 in local demand. high cost for companies. Moreover,
Incentives for businesses to reshore
Sources: Bloomberg, Euler Hermes, Allianz Research
are still lacking
Around each recession, supply chains become a Innovation: Reshoring for cost- Creative destruction: Reshoring is
concern. This time around, the concern has peaked competitiveness reasons is unlikely, not only job creation… it’s job
among companies and policy makers. Building but race for product innovation is destruction through innovation, for
resilience and reshoring are the new rhetoric. better instance robotization.
© Copyright Allianz 13RISKS TO OUR OUTLOOK
H2 2020 2021 Beyond 2021
Better-than-expected trade flows, tourism receipts
and recovery in the services sector (exports-exposed Vaccine available earlier than expected,
economies benefit, e.g. Germany) tourism returns to pre-crisis levels
Stronger policy stimulus and policy
Stronger policy support and stimulus (e.g. Stronger policy stimulus, notably
coordination, resolving structural issues and
European bad bank, UK, China, etc.) improving investment and the labour market
Upside supporting potential growth (e.g. EU, Italy, China)
Declining financial risks in domestic financial (e.g. China, France, United Kingdom, Italy,
risks Exports competitiveness improving, notably on
system, markets, external financing, etc. (e.g. Italy, etc.)
supply chains reshoring (Central Europe, UK,
Turkey, China, India, etc.) Oil and commodities prices rebound
etc.)
Appeased socio-political risks, restoring domestic (benefitting e.g. Russia, Kazakhstan,
and external confidence (e.g. Brazil, Hong Kong, Azerbaijan, the GCC, Latin America, etc.)
etc.)
Protectionism intensifies and global trade
does not recover
Strong lockdowns to fight a second Covid-19 wave Strong lockdowns to fight waves of Covid- Protectionism intensifies and calls into question
Protectionism and slow global trade recovery (e.g. 19 outbreaks growth models (Germany, trade hubs, China,
Germany, UK, trade hubs, etc.) Political risk, policy mistakes (e.g. Italy, etc.)
Sustained risk aversion limiting capital flows to EU, UK, India, HK Debt sustainability and banking sector
EMs and pressuring economies with large external Sustainably higher unemployment rate, concerns worsen (France, Italy, China, India,
Downside
financing needs threatening the consumer-led recovery some countries in Africa, etc.)
risks Policy mistake (e.g. EU, France, Italy, China, India, (Germany, China Lack of structural reforms or missed
etc.) Deteriorating bank asset quality, opportunities cap productivity (China, India, UK,
Domestic imbalances correction (e.g. German real sometimes leading to bailouts and feedback Central Europe, etc.)
estate, Indian financial sector) loop (e.g. Italy, France, China, India Fiscal consolidation (U.S., China, etc.)
Social risks and protests worsen Debt distress and currency crises (some Socio-political risks heighten
emerging countries, e.g. in Central Europe,
Africa, Latin America)
© Copyright Allianz 14PROTRACTED CRISIS SCENARIO (30%)
U-SHAPED RECOVERY PROTRACTED CRISIS
SCENARIO • Drastic confinement measures, taking heavy • Longer health crisis triggers brutal market dive
BASE CASE
WORST CASE
toll on economy & markets • Systemic credit event leads to liquidity crisis
• Sharp recession in H1 20 across DMs & • Policymakers unable to restart growth
several large EMs, followed by weak recovery
HEALTH • Belated & uncoordinated policies • Reinfections with generalized domestic
POLICY confinement
• Persistent localized containment measures;
incl. targeted travel restrictions • Borders closed again until end-2020
ECONOMIC • Aggressive fiscal & monetary easing • Even more aggressive fiscal & monetary policy
POLICY
• Direct support measures • Not very effective
GDP growth, % 2020 2021
GDP growth, % 2020 2021
World -4.7 +4.8
ECONOMIC Global trade 2020 World -9.4 -0.5 Global trade 2020
IMPACT US -5.3 +3.7 volume -15% volume -30%
US -12.0 -2.0
China +1.5 +7.6 Insolvencies 2020-21 Insolvencies 2020-21
China -6.6 +1.8
+33% +90%
Eurozone -9.0 +6.0
Eurozone -20.0 -2.5
UK¹ - 13.3 +5.0
UK¹ -24.0 -5.0
© Copyright Allianz 15
1 Extended lockdown and BREXIT uncertainties may worsen outcome for UK. Source: Allianz ResearchASIA-PACIFIC: UNEVEN SUCCESS IN CONTAINING
THE EPIDEMIC
Stringency index for early and/or successful lockdowns Stringency index in emerging Asia with slow easing of lockdowns
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2020-01 2020-02 2020-03 2020-04 2020-05 2020-06 2020-07 2020-01 2020-02 2020-03 2020-04 2020-05 2020-06 2020-07
AUS CHN HKG NZL KOR Japan IND IDN MYS PHL SGP THA
Sources: Oxford Coronavirus Government Response Tracker, Euler Hermes, Allianz Research
© Copyright Allianz 16ASIA-PACIFIC: UNEVEN ECONOMIC IMPACT OF THE
EPIDEMIC
Manufacturing PMIs: comparatively smaller Manufacturing PMIs: large drops and Manufacturing PMIs: longer time spent in
drops and faster recoveries partial recoveries the trough
60 60 60
55 55 55
50 50 50
45 45 45
40 40 40
35 35 35
30 30 30
25 25 25
05-2017 05-2018 05-2019 05-2020 05-2017 05-2018 05-2019 05-2020 05-2017 05-2018 05-2019 05-2020
Australia China Malaysia New Zealand
Hong Kong Japan Philippines Thailand India Indonesia Singapore
South Korea Taiwan Vietnam
Sources: IHS Markit, Euler Hermes, Allianz Research
© Copyright Allianz 17ASIA-PACIFIC: PRAGMATICALLY RESYNCHING WITH
CHINA?
Real GDP growth (%) Exports of main 14 economies in APAC Fiscal stimulus (% of GDP)
35 Total exports, 3-month %y/y 20
New forecasts Old forecasts JP
2019 Exports to U.S.
2020 2021 2020 2021 18
Fiscal support (% of GDP)
Asia-Pacific 4.3 -1.3 5.9 -0.6 6.5 Exports to EU 16 SG
Australia 1.8 -4.3 3.3 -5.0 3.5 25
Exports to China 14
China 6.2 1.5 7.6 1.8 8.5
Hong Kong -1.3 -5.9 4.1 -4.7 4.5 12 MY
India 4.2 -3.1 7.3 1.1 7.5 15 10 HK
Indonesia 5.0 -1.5 6.2 0.9 6.7 CN TH
Japan 0.7 -5.7 2.2 -5.7 2.2 8 AU VN
NZ
Malaysia 4.3 -3.3 5.9 -3.2 6.2 6
5 KR
New Zealand 2.2 -4.8 3.9 -5.2 3.0 IN
Philippines 6.1 -2.7 7.6 -2.6 7.7
4
PH ID
Singapore 0.7 -5.1 4.5 -4.1 4.9 2 TW
South Korea 2.0 -1.5 3.6 -2.5 4.5 -5
0
Taiw an 2.7 -0.3 3.4 -2.0 4.7
0 25 50 75 100
Thailand 2.4 -6.0 5.4 -4.1 6.6
Vietnam 6.9 2.3 6.0 3.1 6.7 -15 Share of informal employment in
12 13 14 15 16 17 18 19 20 total employment (%)
Source: National Statistics, Euler Hermes, Allianz Research Sources: IMF, Euler Hermes, Allianz Research Source: World Bank, Euler Hermes, Allianz Research
We have revised down GDP growth for Global trade should overall remain Different initial conditions and economic
the Asia-Pacific region from +4.2% prior under pressure this year, but exposure structures require varying levels of
to the global pandemic to -1.3% in 2020 to China could be comparatively policy supports. India, Indonesia,
(after 4.3% in 2019). supportive. Vietnam and Thailand could do more to
© Copyright Allianz protect employment. 18CHINA RECOVERY UNEVEN AND CAPPED?
Daily average coal consumption at major Traffic congestion index (across 100 Property transaction volume (across 30
power generation groups, base 100 cities), base 100 cities), base 100
115
100 140
110
105 120
90
100
100
80 95
80
90
70
85 60
60 80
40
75
50 20
70
40 65 0
-21 0 21 42 63 84 105 126 147 -21 0 21 42 63 84 105 126 -21 0 21 42 63 84 105 126 147
2016-2019 average 2020 2016-2019 average 2020 2016-2019 average 2020
Source: Wind, Allianz Research Source: Wind, Allianz Research Source: Wind, Allianz Research
Industrial activity is now probably c.5% below usual levels. On the consumption and services side, it could take longer for
confidence and households behaviours to return to normal: property transactions remain -34% below usual volumes, dining
bills (including take-outs) are c.-40% below pre-outbreak and household disposable income declined by -3.9% y/y in real
terms in Q1 2020 (vs. +5.8% in 2019).
© Copyright Allianz 19CHINA GROWTH FORECAST FOR 2020 AT +1.5%
GDP growth (%) and contributions (pp) Unemployment rate and leading indicator Credit impulse & PMI
6.2 Unemployment rate % 45 56 25
Official Manufacturing PMI
6.0 50 55 20
CKGSB survey - Recruitment Credit impulse, 12-month
5.8
index, smoothed, 7-month lead, rhs
lead (rhs, rev)
54 15
55
5.6 53 Forecast 10
60
5.4 52 5
65
5.2 51 0
70
5.0 50 -5
4.8 75 49 -10
4.6 80 48 -15
12 13 14 15 16 17 18 19 20 21 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Sources: National sources, Euler Hermes, Allianz Research Sources: Wind, Euler Hermes, Allianz Research Sources: PBOC, Euler Hermes, Allianz Research
After the slump in GDP growth in Q1 (at Leading indicators point to the We expect fiscal support amounting to
-6.8% y/y), we expect a gradual unemployment rate remaining at 7.1% of GDP (up from 2.7% forecast
recovery, becoming more visible in H2. elevated levels (around 1pp above long- before the COVID-19 crisis). In terms of
We expect 2020 GDP growth at +1.5%. term average) for the rest of 2020. monetary policy, further injections of
© Copyright Allianz liquidity and policy rate cuts are likely. 20HONG KONG SCENARIOS AS OF JULY 2020
Improving environment The ‘New Normal’ Deteriorating environment
(10%) (65%) (25%)
Triggers: Scenario: Triggers:
• No further sanctions and retaliations between • China’s national security law theoretically • Harsh implementation of China’s national
China and the U.S. threatens the independence of Hong Kong’s security law in Hong Kong, strong retaliation
• Mainland China sends clear signals that legal system, but implementation is not harsh against U.S. actions (e.g. on U.S. FDI into
business regulatory in Hong Kong will not and does not impact business environment Hong Kong), along with long term trend of
change, and significantly increases • U.S. actions include financial sanctions on developing regional trade and financial hubs
investment in Hong Kong to help recovery Chinese officials involved in the national in the mainland.
security law, tightening of visa requirements, • The U.S. treats Hong Kong as mainland
Economic impact: exports restrictions to Hong Kong China for trade and direct investment, and is
• In the short-term: stronger recovery of Hong followed by other developed countries
Kong economy, with GDP growth forecasts Economic impact :
in 2020 and 2021 increasing to -4.2% and • In the short-term: continued small-scale Economic impact:
+7.9% respectively. protests in Hong Kong. Impact of trade • In the short-term: damaged business and
• In the medium-term: back to pre-Covid-19 sanctions is limited (less than 1% of Hong consumer sentiment jeopardize the recovery.
and pre-2019 protests normal. Kong GDP if same tariff hikes as those GDP growth forecasts in 2020 and 2021
applied to mainland China over 2018-19). falling to -6.6% and +0.8% respectively.
Hong Kong’s 2020 and 2021 GDP growth • In the medium- to long-term: Divestment of
forecasts revised down to -5.9% and +4.1% U.S. firms, stock of FDI could decline by
from -4.7% and +4.5% respectively. almost half in coming five years (nearly
• In the medium-term: U.S. FDI to Hong Kong USD20bn). Not necessarily compensated by
slows, but without divestment. FDI from FDI from mainland China, as focus is on
mainland China accelerates. domestic hubs.
© Copyright Allianz 21INDIA: -3.1% GDP GROWTH IN FY2020-21, WITH
DOWNSIDE RISKS
High frequency indicators Twin deficits (as % of GDP)
4% Fiscal balance
Current account balance Forecasts
0 2%
Daily Covid-19 cases 15,403
14,831
10 0%
Lockdown stringency index 100
75
-2%
Electricity consumption -4%
-32%
%y/y -7% -4%
1 March
Workplace mobility 0% Crisis peak
-65% -6%
(vs. pre-crisis) -28% Latest (mid-June)
7.5% -8%
Unemployment rate 27.1%
8.5%
42.8% -10%
Labour participation rate 35.9%
39.7%
-12%
103
Consumer sentiment index 39
42 -14%
90 93 96 99 02 05 08 11 14 17 20
Sources: Bloomberg, National statistics, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz Research
India has started to de-confine, even though data Risks are skewed on the downside. Policy leeway is
suggest the epidemic is not yet controlled. This limited by twin deficits, and a vulnerable financial
means that activity resumption could be even slower system. In the medium run, we are more concerned
than in other economies. about India’s financing requirements.
© Copyright Allianz 22CAPITAL FLOWS BOTTOMING OUT BUT RISKS OF
SUDDEN STOPS STILL REMAIN
Emerging Markets: Net portfolio flows by region (USD bn) Emerging Markets: Gross external financing requirement
100 400% (% of FX reserves)
356%
Africa & Middle East Emerging Europe
394%
80 Latin America Emerging Asia ex China
China
60 300%
229%
218%
40
188%
169%
161%
20 200%
144%
132%
126%
113%
110%
0
94%
89%
89%
84%
72%
-20 100%
60%
45%
43%
39%
32%
29%
26%
25%
19%
-40
16%
9%
8%
4%
-60 0%
-80
-100
Jan 18 Jul 18 Jan 19 Jul 19 Jan 20
Sources: National statistics, IIF, Allianz Research estimates Sources: IHS Markit, Allianz Research
Net portfolio flows to EM dropped sharply to a record In Turkey and Argentina, gross external financing
low of -USD 89 bn in March. But moderate rebound requirements rose further from around 250% at end-
already in April (+USD23bn), May (+USD2bn) and 2019.
June (first estimate +USD33bn).
© Copyright Allianz 23THE COVID-19 QE PROGRAMS COULD ENDANGER
CENTRAL BANKS’ CREDIBILITY
Exchange rate changes vs. FX reserves changes Government bond purchase programs in EMs
Gov. bond purchases by Central Bank Foreign- Total FX-
10% Mexico Colombia Country Policy rate Size (% of GDP, Primary / secondary
owned local denominated Inflationary
Romania gov. bonds debt (% of risk
India purchased since March) market?
5% (% of total) GDP) *
FX reserves (change YTD in %)
Hungary Turkey 8,25% 9,4% Secondary 10,1% 63,8%
0% Indonesia 4,25% 2.8% ** Primary & secondary 38,6% 21,3%
Brazil Russia Malaysia Saudi Poland 0,10% 4,2% Secondary 23,4% 49,5%
-5% Croatia 2,50% 3,4% Secondary na na
Indonesia Arabia
South Thailand 0,50% 2,4% Secondary 17,2% 14,5%
-10% Africa Philippines 3,25% 1,6% Secondary na na
Chile Poland Egypt Colombia 3,25% 1,1% Secondary 24,5% 27,9%
-15% India 4,00% 0,8% Secondary 3,6% 12,1%
South Africa 3,80% 0,7% Secondary 37,2% 35,3%
-20% Hungary 0,75% 0,3% Secondary 18,6% 62,1%
Romania 1,75% 0,2% Secondary 19,3% na
-25%
Costa Rica 0,75% Has started *** Secondary na na
Brazil 2,25% Announced, not started Secondary 10,4% 29,4%
-30% Turkey Chile 0,50% Announced, not started Secondary na 52,6%
-35% Czechia 0,25% Announced, not started Secondary 40,6% 34,5%
Malaysia 2,00% Announced, not started Unspecified 25,3% 32,5%
-25% -20% -15% -10% -5% 0% 5% * Both public and private debt. ** Bank Indonesia already owns about 15% of tradable government bonds.
LCU vs. USD (change YTD in %) *** Central Bank of Costa Rica was authorized and approved purchases of up to 0.7% of GDP .
Sources: IHS Markit, Allianz Research Sources: National statistics, IHS Markit, Allianz Research
Turkey has by far burned the most FX reserves this Some EMs have begun to purchase government bonds to
year to defend its currency – albeit with limited ensure smooth functioning of bond markets and sufficient
success. Net FX reserves dangerously low now. liquidity for banks to support private sector credit. This is mostly
Watch out for Brazil, South Africa and Mexico. different from QE in AEs and much smaller in scale. Indonesia,
Turkey, Brazil, Poland and Croatia require monitoring.
© Copyright Allianz 24THANK YOU Allianz Research Global and Asia-Pacific Economic Outlook © Ekaterina Pokrovsky - stock.adobe.com July 2020 © Copyright Allianz
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