Leading trade credit insurer Euler Hermes ACI has issued its 2008 Global Risk
Analysis Report for emerging economies. The report is calling for lower global
GDP growth and reduced world trade volumes for the year.
World: Expect world GDP growth of around 3% in 2008 (3.8% in 2007), the
lowest since 2003, with the U.S. at just 1.5% (2.2% 2007), Japan 1.5% (1.9%
2007) and Euro-zone 2% (2.6% 2007). Moreover, the risks are largely to the
downside. Expect further monetary easing, but inflationary pressure to limit its
scope and the upside when recovery begins. Nonetheless, expect inflation to
ease, helped by lower commodity prices, though energy supply shocks remain a
threat. Emerging economies generally are better placed to weather the downturn
than previously, and will provide some cushion, but have by no means de-coupled.
Expect economic policies and stable government to be under closer scrutiny.
World trade growth will be 5-6% (average 8.1% 2004-07). Expect the slowdown to
increase trade tensions and the influence of sovereign wealth funds.
Politically, the Iran nuclear issue remains live and the Middle East generally
the most potent flashpoint.
Asia: Expect lower growth in 2008 (8%) though the region should fare better
than in 2000-01 (the previous marked global slowdown). Expect China’s growth to
slow noticeably, as export demand eases, though domestic demand should retain
momentum. Expect India’s growth to slow to 8% and ASEAN’s to 5.2%. Pakistan’s
President Musharraf relinquished his military leadership and attempted to
restore an electoral schedule, but stability was further disrupted by opposition
leader Benazir Bhutto’s assassination and South Asia faces an uncertain 2008.
Expect cross-straits relations to dominate Taiwan’s Q1 elections. Thailand’s
end-2007 general election is unlikely to herald stable government, indeed
stresses may intensify if military-installed institutions undermine the poll
results. Kazakhstan was the first emerging market seriously impacted by the
credit market crisis, with banks unable to roll over ST loans, but should have
sufficient resources to come through.
Latin America: Though more resilient than before to the global credit market
crisis and U.S. slowdown—a reflection of stronger external balances and better
debt dynamics—the region will not be immune, especially if commodity prices
fall. Expect growth to slow to 4.1% in 2008 (after 5.4% 2007). Inflationary
pressures though set to ease, limit the scope for monetary easing. Mexico’s
growth may drop below 3% and Brazil’s to 4.3%. High inflation is the key
challenge facing Argentina’s new president, also in Venezuela where President
Chavez suffered his first electoral setback over constitutional change to
further his radical agenda. Other radical leaders are having mixed success. In
Ecuador the new constitutional assembly has dismissed congress, but Bolivia’s
government has collided with regions seeking greater autonomy. Expect the U.S.
slowdown to hit tourism and remittances with knock-on effects for growth in
Central America and the Caribbean.
Central and Eastern Europe: Regional growth is forecast to slow to about 5.3%
in 2008 from 6.5% in 2007, owing to less benign external conditions. Several
countries face increased external liquidity risk, notably the Baltic states,
Romania, Bulgaria and Ukraine, as recently strong growth has been driven by
rapid domestic demand that has been fuelled by unsustainably large-scale foreign
borrowing, raising concerns about overheating and a hard landing in the wake of
tightening global liquidity. Hungary and Turkey, where prudent economic policies
have had initial success in tackling economic imbalances but have also slowed
growth, may manage a soft landing but remain vulnerable to further external
shocks. Russia will elect a new president in March, but expect policy continuity
as well as the business environment to remain difficult. Ukraine has a new
government, but expect continued political uncertainty while a 38% price
increase for Russian gas threatens economic stability.
Middle East: Despite peace talks in Annapolis (USA) at end-2007, a high risk
profile remains, not least because of developments in Iran, Iraq and Lebanon. In
2008 terrorist attacks are unlikely to abate, although oil production, tourist
revenues and workers’ remittances are likely to remain largely unaffected by
such incidents. Expect regional growth in 2008 of 4-5% (5%+ in 2007). Focus in
2008 is likely to shift to curtailing inflationary pressures, partly through
currency regime adjustments, with intensifying calls for other GCC countries in
particular, to follow Kuwait’s lead and either abandon their dollar pegs or
revalue against a weakened USD. However, this would entail a significant
write-down in dollar-denominated assets of those countries, so they may choose
to sit tight. Relatively diversified economies, including the UAE, should do
well in 2008, though the oil and gas sectors will continue to dominate the
Africa: Expect regional GDP growth to dip below 5% in 2008 for the first time
since 2003, as the global environment and commodity demand weakens. Nonetheless,
recent gains reflect sound policy implementation, structural reforms and
institutional improvements, as well as the commodity boom and debt relief.
Accordingly, the region is better positioned to withstand a global downturn. In
addition, expect FDI (particularly from Asia) to remain firm. Angola, Egypt,
Tanzania, Zambia and South Africa are likely to continue to do well. In South
Africa, leadership change of the ANC is unlikely to result in significant
short-term policy re-direction. Flashpoints continue in Sudan, Somalia and
Zimbabwe. Violence following Kenyan presidential elections indicates regional
unease with democratic transitions. The outlook for some economies, including
Burkina Faso, has improved following substantial debt relief.
Source: Euler Hermes ACI