Download Folie 1

Atradius Economic Research
Light in the Tunnel still Faint
John Lorié, Chief Economist
The ICTF International Credit Professionals Symposium
Amsterdam, April 15, 2013
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 2 of 33
Global growth weak as Eurozone crisis still dominates
Source: IHS Global Insight.
Source: IHS Global Insight.

Global growth rates started to slide during the second half of 2011 after the escalation of the Eurozone crisis. The slide has not
even completely stopped. Global growth rates were weak during 2012: average quarterly growth rate 2.2% y-o-y, with a weak
Q4: 2%.

Global growth was dragged down by the advanced economies: 1.2% on average in 2012 (vs 1.5% in 2011). Q4 was
especially weak: 0.6% y-o-y.

Emerging economies were affected as well: average 4.7% growth versus 6% in 2011, whilst Q4 was even somewhat better:
5.2% y-o-y growth. The growth gap between the advance economies and emerging economies has widened again.

The Eurozone crisis dominates growth in the advanced economies, as the Eurozone contracted: 0.2% y-o-y shrinkage (1.5%
growth in 2011), with -0.5% in Q4. US growth remains positive, on average 2.2% y-o-y, but in Q4 also lower at 1.6% y-o-y.

Latin America posted a lower growth at 2.3% (Q4 2.4% y-o-y), whilst global growth power house Asia could welcome on
average 4.9% y-o-y growth (Q4 5.1% y-o-y).
Economic Outlook, John Lorié, 15 April 2013 – Slide 3 of 33
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 4 of 33
Fiscal policy provides no relief: austerity is the (global) buzzword
Government debt (% GDP)

Debt levels in relation to GDP have grown rapidly from
below 80% in 2008 to above 100% on average (bank
rescue operations and fiscal stimulus).

Advanced economies: very limited, if any, means of
further fiscal policy stimulus. Emerging economies: room
for fiscal stimulation, with an average level of about 35%.

Fiscal consolidation is the buzzword in the advanced
economies: budget deficits (% of GDP) rapidly declining.

Eurozone: average fiscal deficit decreased from slightly
above 6.4% in 2009 to 3.3% in 2012 and is to decline to
2.6% in 2013. Huge differences between countries in the
Eurozone: Ireland has a deficit of 7.5%, Germany of 0.4%
(2012).

US: much budget deficit higher level in 2009, at 13.3%, to
be reduced gradually to 8.7% in 2012, with 7.3%
projected for 2013. Similar pattern for the UK.

Emerging economies: fiscal consolidation as well with an
already low 4.5% deficit 2009 reduced to 1.9% in 2012,
1.8% in 2013.

Large differences: within the BRIC India has a deficit of
10.2%, China 1.6% (2012). China: US$ 158bn investment
program to upgrade the infrastructure, pushing the budget
deficit to 2% in 2013.
120
100
80
60
40
20
0
2007
2008
United States
2011
2010
2009
Euro Area
2012 (est)
2013(f)
2014(f)
Emerging Market Economies
Sources: IMF; Atradius Economic Research.
Government deficit (in % GDP)
16
14
12
10
8
6
4
2
0
-2
2007
2008
2009
United States
2010
Eurozone
2011
2012(est)
2013(f)
2014(f)
Emerging economies
Source: IMF; Atradius Economic Research.
Economic Outlook, John Lorié, 15 April 2013 – Slide 5 of 33
Monetary policy very loose

Monetary authorities continue to pursue a very loose monetary
policy: by low interest rates and ample liquidity.
Interest rates:
Source: IHS Global Insight.

Low real interest rates hold for the advances economies (where the
rate is about - 1%) and, to a lesser extent, emerging economies:
the real rate in the emerging markets is considerably higher, but at
slightly above 2% still accommodative.

Trend of increasing real interest rates in both advanced as well as
emerging economies of early 2012 as a result of lower inflation
rates has not continued: deflationary tendencies have somewhat
eased, lowering official policy rates.

Lowering official rates in emerging economies In the advanced
economies, authorities have hardly any further room: rates at
0.125% (FED Funds Rate) and 1% (ECB Refinancing Rate).
Liquidity:

FED and ECB: vigilant as the 2008 crisis exploded, providing
ample liquidity to the banking system.

Since then liquidity growth, as indicated by the total central bank
balance sheet, relatively moderate. Holds in particular for the FED,
although the most recent Q3 move provided a boost: USD 85bln
per month pumped into the market. ECB however has further
expanded its balance sheet as the Long Term Refinancing
Operation (LTRO) of about Euro 1 trillion gathered pace in early
2012. In early 2013 over 60% of the extra liquidity of Euro 500 bln

LTRO critical to counter serious interbank funding problems, in the
Eurozone as well as the US. But it had some negative side effects.
Economic Outlook, John Lorié, 15 April 2013 – Slide 6 of 33
Monetary transmission hick up: Southern European funding
ECB funding of Banks: Portugal, Italy and Spain
(billions of Euro)
Bank exposure on Southern European Banks: per country
(2005-2012 in USD billion)
900000
450
800000
400
700000
600000
500000
400000
Greece
350
Ireland
300
Italy
250
jan-11
200
jul-12
Portugal
300000
Spain
200000
150
100000
100
0
20
05
20 Q1
05
20 Q3
06
20 Q1
06
20 Q3
07
20 Q1
07
20 Q3
08
20 Q1
08
20 Q3
09
20 Q1
09
20 Q3
10
20 Q1
10
20 Q3
11
20 Q1
11
20 Q3
12
-Q
1
50
0
Portugal
Italy
Spain
Sources: BIS; Atradius Economic Research.

Firstly, the interbank funding market has thinned as particularly Southern European banks have significantly less access.
Their deposit base is also being eroded as depositors increasingly seek refuge in Northern European banks they have to
turn to the ECB. This process has stabilised since mid 2012.

Secondly, the LTRO seems to have aggravated an issue that we have already alluded to above: the sovereign debt
crisis.
Economic Outlook, John Lorié, 15 April 2013 – Slide 7 of 33
Monetary transmission hick up: sovereign holding woes
Government bonds: exposure of French and German banks
(in USD billion)
Government bonds: holdings of Italian and Spanish banks
(billions euro)
140
350
120
300
100
250
80
sep-11
apr-12
60
200
January 2012
150
August 2012
40
100
20
50
0
0
Greece
Italy
Spain
Spanish banks
Italian banks
Sources: BIS; Atradius Economic Research.

Banks were, and still are, holding large portfolios of intra Eurozone sovereign bonds. Large portfolios of Southern
European sovereign bonds are held by German and French banks. Following the escalation of the sovereign debt crisis
these portfolios were reduced, but not spectacularly.

The risk related to sovereign debt is therefore still weighing on Northern European banks. The LTRO has had limited
impact on that.

More important was the purchase of sovereign debt by local banks. In the first two months of the LTRO Spanish banks
bought Euro 47bn Spanish government bonds to bring the portfolio to Euro 220bn, for Italian banks these figures are Euro
315bln and Euro 112bn.

These purchases of relatively high risk sovereign bonds have clearly raised the risk profile of the banks. And, in turn, of the
governments that will ultimately have to stand behind these banks. The by product of the LTRO is that the sovereign debt
crisis now weighs even more heavily on the banking system.

Only recently Italian and Spanish banks have started to off load sovereign bonds, but at a very limited scale.
Economic Outlook, John Lorié, 15 April 2013 – Slide 8 of 33
Monetary transmission fails in the Eurozone
Sources: IHS Global Insight; ECB; Federal Reserve; Atradius Economic Research.

The implications of a banking system that is in ill health for growth are severe. It causes a dysfunctional credit
channel: banks are simply very reluctant to lend.

That is expressed by the ever tightening of the conditions for loan supply since the 2008 crisis in the Eurozone,
whereas in the US conditions have been relaxed starting early 2010.

Direct evidence of dysfunctionality can be obtained from the development of credit growth. This is hovering around
zero in the Eurozone (now even negative for non financial companies), but has clearly gathered pace in the US
since mid 2011.

The picture that imposes itself for the Eurozone is an expansionary monetary policy that is impotent to help push
growth due to banking sector health issues.

Some alleviation may be expected from the most recent decision to postpone increasing liquidity requirements for
banks.
Economic Outlook, John Lorié, 15 April 2013 – Slide 9 of 33
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 10 of 33
Policy steps since June Summit to solve crisis encouraging…
1.
Fiscal compact:
- enshrine budgetary discipline in national law, self
correcting mechanism.
-European Commission: policing role
-compliance: European Court of Justice.
In force since January 1, 2013 17 members ratified (15
EMU members)
Aims at: budgettary discipline Member States
2.
ESM:
-lend to countries in trouble as the ECB does to banks.
-17 EZ countries provide Euro 80bn paid capital, Euro
500bn drawn from the capital market.
-Euro 355bn is available for new loans; EFSF/EFSM
loans to Greece, Spain and Italy will be taken over.
-new ESM loans will not be senior relative to other
debt issued.
-lending or capital to banks, European Banking
supervision mechanism in place.
EC proposal supervisory mechanism during first half
of 2013
Aims at: breaking banking sovereign feedback loop
Sources: IHS Global Insight; OECD; Atradius Economic Research.
Economic Outlook, John Lorié, 15 April 2013 – Slide 11 of 33
Policy steps since June Summit to solve crisis encouraging (2)…
3.
European Banking Union:
-European Banking supervision to be created, a
responsibility to be taken on by the ECB.
-European Commission proposal (September 2013):
(i) introduction of a Single Supervision Mechanism per
January 1, 2012, with all banks to be included one year
later at the latest.
(ii) the Commission envisages a supervisory role for the
ECB, actual work largely national supervisors.
Proposal for bank resolution in first half 2013. Details to
be approved by all participating EU member states.
Not in yet: European Depository Guarantee System
Aims at: reinforcing European banking system
4.
ECB action: ‘Whatever it takes‘
-purchase an unlimited amount of short term (max 3
year) government bonds in the secondary market.
-tied to conditions (IMF, European Commission).
- the ECB will not consider itself senior debt holder for
bonds being purchased under the program.
-inflation neutral by sterilisation.
Sources: IHS Global Insight; OECD; Atradius Economic Research.
Aims at: fears of Eurozone break up.
Economic Outlook, John Lorié, 15 April 2013 – Slide 12 of 33
…and have calmed down financial markets
Stock market volatility - EMU and the United States
The price of credit risk: Investment grade credit quality
(Credit Default Swap spreads, 5-year segment)
(MSCI indices, standard deviation of annualised daily returns, %)
300
90
Eurozone
80
300
United States (CDX)
250
United States
250
Europe (ITraxx)
70
Basis points
60
50
40
30
200
200
150
150
100
100
50
50
20
10
0
2007
2008
2009
2010
2011
2012
2013
0
2007
0
2008
2009
2010
2011
2012
2013
Sources: IHS Global Insight; CBOE; Atradius Economic Research.

Following Mid July 2011 stress has hurted the financial markets, with high levels of volatility in the equity markets. Since
late 2011 pressure has eased considerably, now for the Eurozone as well (LH graph).

Volatility is currently no longer markedly lower for the US.

Corporate credit spreads in the US and Eurozone widened considerably since Mid July 2011 as the financial turmoil
intensified. The CDS premium for European investment grade has increased from 100 basis points in May to 190 basis
points in September. Since late 2011 the tension has eased, with an interruption in early Spring of 2012 - even for the
Eurozone as well (RH graph).

CDS spreads are currently still lower for the US, but the gap is decreasing.
Economic Outlook, John Lorié, 15 April 2013 – Slide 13 of 33
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 14 of 33
Global growth expectations for 2013 are flat
Real GDP % Growth
Consensus Forecast
March 2013 Survey
Major Regions
Western Europe
United States
Euro zone
Asia Pacific
Latin America
Total
2011
2012
2013
2014
1.5
1.8
1.5
-0.3
2.2
-0.5
0.0
1.8
-0.3
1.2
2.8
1.0
4.6
4.2
3.1
4.7
2.7
2.5
4.8
3.5
2.5
4.9
3.9
3.2
2013 Trend
2013 M-o-M
forecast revision
Source: Consensus Forecast (survey date March 2013).

Despite the negative impact of the Eurozone debt crisis, the overall expectation for real economic conditions is,
globally, positive. As growth landed at 2.5% for 2012, it will marginally improve (2.6%) for 2013 and leap up again in
2014 - towards 3.2%.

But we do see overall divergence push on in 2013. Firstly, within the advanced economies, where the Eurozone
growth is expected to remain marginally negative at -0.3%, and the US with a projected growth of 1.8%. Secondly,
between the advanced economies and emerging economies, with the latter growing at a pace of around 4%, led by
Asia Pacific.
Economic Outlook, John Lorié, 15 April 2013 – Slide 15 of 33
In major markets they show a divergent picture…
Real GDP % Growth
Consensus Forecast
March 2013 Survey
Major Markets
2011
2012
2013
2014
France
Germany
1.7
0.0
0.0
0.8
3.0
0.7
0.7
1.7
Italy
Japan
0.6
-2.4
-1.2
0.5
-0.5
2.0
1.2
1.2
Netherlands
Spain
1.1
-0.9
-0.6
0.8
0.4
-1.4
-1.6
0.3
United Kingdom
United States
0.9
0.2
0.9
1.6
1.8
2.2
1.8
2.8
2013 Trend
2013 M-o-M
forecast revision
Source: Consensus Forecast (survey date March 2013).

In 2012 the Eurozone economies showed a mild contraction at -0.5%. Spain and Italy more pronounced at a higher
contraction at -1.6% and -1.2% respectively; US growth is expected to continue, just as Japan’s, although for the latter at a
much lower pace.

The projection of economic growth in the US, Japan and Western European countries, if any is well below potential. In
2013 Eurozone countries (as a whole) are expected to show a marginal contraction of -0.3%.

Month-on-month revisions broadly point at slowdown of the negative momentum of growth, whilst the trend (2013 vs 2012)
for the Eurozone countries is unambiguously negative (with the exception of Germany and France), just as the one for the
US.
Economic Outlook, John Lorié, 15 April 2013 – Slide 16 of 33
…whilst the forecast slide for 2013 weakly slows
Consensus GDP growth forecasts for 2013
(Monthly forecast revisions since January 2012)
3
3
France
Germany
2
2
Italy
Netherlands
Spain
1
Percent
Euro zone
1
United Kingdom
United States
0
0
-1
-1
-2
-2
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Source: Consensus Forecast. Note: Evolution in Consensus GDP growth forecasts for 2012 across 20 consecutive surveys (January - November 2012).

For 2013 the slide of the momentum seems to slow, even for the Eurozone as a whole. Exceptions are Germany and The
Netherlands.
Economic Outlook, John Lorié, 15 April 2013 – Slide 17 of 33
Emerging markets will pick up and drive growth
Real GDP % Growth
Consensus Forecast
March 2013 Survey
Brazil
Russia
India
China
2011
2012
2013
2014
2.9
4.2
7.2
9.2
1.1
3.8
5.5
7.7
3.1
3.3
5.2
8.2
3.7
3.8
6.3
8
2013 Trend
2013 M-o-M
forecast revision
Source: Consensus Forecasts (regional surveys, March 2013).

After a shallow recession in 2009 caused by the collapse of global trade and subsequently a drop in commodity prices, the
Emerging Regions resumed their strong positive growth trend of the years before: 2010 and 2011 turned out to be
excellent years. Growth in 2012 was impacted by the Eurozone crisis, particularly in Asia. In 2013 as the Eurozone crisis
has calmed down growth will pick up again.

Growth rates vary significantly between the Emerging Regions and between the BRIC countries, with China and India
growing much faster than Brazil and Russia. Brazil suffered from restrictive monetary policy and erosion of
competitiveness in 2012 but those factors are expected to fade in 2013.

Trend arrows revisions provide a mixed signal as to the trend, which also holds for m-o-m forecast revisions: a mixed
signal as to momentum. But, the growth remains at a high level anyway.
Economic Outlook, John Lorié, 15 April 2013 – Slide 18 of 33
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 19 of 33
The outlook implies stabilising insolvency rates, at a high level…
Default rate developments
(Business failures as fraction of all enterprises, expressed in %: forecast for 2012 and 2013)
4.5
4.0
United Kingdom
4.0
3.5
United States
Eurozone
3.5
3.0
Eurozone periphery
3.0
Nordics
2.5
APAC
2.5
Total
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
2006
2007
2008
2009
2010
2011
2012
2013
Source: Atradius Economic Research. Note: TPE-weighted regional averages.

The outlook of depressed demand and lending restrictions implies stabilising insolvency conditions across the board, at
a rather high level (compared to pre Lehmann).

The default outlook for the Eurozone is still mixed, which aligns with the large differences in economic performance
across the north and the south.

But importantly, the Southern European countries are expected to show stabilisation as well.

We can only expect an improvement in the insolvency environment not earlier than in late or after 2013, with a gradual
adjustment back toward long-run average default levels.
Economic Outlook, John Lorié, 15 April 2013 – Slide 20 of 33
…with divergence between major markets
Insolvency growth per annum in %
2006
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Japan
Luxembourg
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
United States
6
-5
-3
-10
-20
0
-3
-7
2
-12
14
-14
0
-10
-5
2
0
2007
-4
-6
1
-7
21
-1
7
-15
0
19
-35
6
5
-23
-5
-6
-12
10
-5
-5
-5
2
2008
18
0
10
-2
54
16
8
0
30
100
18
11
-13
1
-35
28
54
100
7
-2
24
52
2009
3
9
11
-12
54
25
14
12
40
50
29
-1
17
73
45
38
36
50
20
24
23
41
2010
-1
-8
2
-20
13
-13
-5
-2
30
10
21
-14
33
-10
-6
-12
16
2
-4
20
-16
-7
2011
5
-8
7
-11
-15
3
-1
-6
33
-7
17
-4
5
-1
-12
-2
17
14
-4
7
5
-15
2012*
1
3
4
-12
0
0
3
-6
30
0
15
-5
8
21
-8
-12
20
38
7
3
-4
-16
2013f
3
2
6
-5
-2
-2
4
-4
10
-5
10
-2
-5
4
-3
-2
5
5
3
-2
-3
-6
Note: Forecasts are based on the outcome of statistical models and expert opinion. Values for 2011 represent actual data. All views expressed here are
those of Atradius Economic Research (final forecast: April 2013).

The picture for 2012 is mixed, with a number of countries indeed improving, such Canada, Norway and the US. A
number of Eurozone countries, Northern (Netherlands, Luxembourg) as well as Southern countries (Greece, Italy,
Portugal, Spain) see a worsening of the insolvency rates.

For 2013 we expect stabilisation at a rather high level, with a number of countries improving (the US, the UK and Ireland
for example) but also quite a few worsening: Italy, Greece, Belgium, Portugal and Spain.
Economic Outlook, John Lorié, 15 April 2013 – Slide 21 of 33
Contents

Global economy weak as Eurozone crisis still dominates

Fiscal contraction and monetary loosening

Encouraging policy steps

Forecast and sentiment slide weakly slows

Default outlook: stabilisation at high level

Appendices with additional slides
Economic Outlook, John Lorié, 15 April 2013 – Slide 22 of 33
Global trade growth and financial flows still under pressure
Global trade

Global trade aguably follows Eurozone crisis. Since
early 2011 it has weakly picked up and is expected to
reach a 3% level for 2012 (5.4% 20 year average).

Background: (i) muted GDP growth, (ii) trade finance
constraints as Eurozone banks withdraw from that
business due to dollar liquidity and balance sheet
issues and (iii) increase in protectionism.
Financial flows to the emerging economies
Sources: IHS Global Insight; Netherlands Bureau for Economic Policy Analysis (CPB).

Declined in 2011 by 10.7% on a GDP indexed basis
and are expected to further shrink in 2012 by another
12.3%.

The pattern is most noticeable in Asia and Emerging
Europe, showing declines of 21% and 29.6% in 2012
respectively.

Background general: (i) Eurozone crisis, Eurozone
banks lowering flows (deleveraging) (ii) shift to safe
havens, such as the United Stated and Switzerland.

Emerging Europe: predominantly bank deleveraging,
Asia: financial flows towards China hampered by an
appreciated currency. Rest of world: also reflecting
local issues, such as the Arab Spring (Egypt) and
restrictions to dampen carry trade flows (Brazil).
Capital flows to Emerging Economies
(in $ indexed for GDP growth)
1400
1200
1000
2011
800
2012e
600
2013f
2014f
400
200
0
Total
LATAM
Emerging
Europe
Asia/Pacific
Affica/Middle
East
Sources: Atradius Economic Research, IIF.
Economic Outlook, John Lorié, 15 April 2013 – Slide 23 of 33
Commodity prices still volatile but less of an issue
Commodity prices (excluding oil):

Prices have risen since 2009 and peaked in early 2011.
Structural factor: growth in emerging economies. Since
then prices have declined with the weakening global
economy, except for food prices (32% up versus June, US
drought).

In 2011 food prices peaked because of adverse weather
conditions leading to harvest short falls in wheat, rice,
rubber, cotton, corn and sugar. The (bad) policy reaction
was stock accumulation and trade restrictions such as in
Russia and Ukraine.

This time is different. Since the second half of 2011 the
acreage increased. Demand is more subdued. Policy to
be coordinated: ‘Rapid Response Forum’ of G-20.
Oil:

In oil market similar demand forces. Unrest in the Middle
East pushed the price further up to levels close to US $
120 a barrel in January 2011.

During 2011 the oil price slipped a bit towards US$ 110
per barrel. Following low stock levels and geopolitical
tensions (Iran nuclear program) prices peaked at US$ 128
in March 2012, then raced down and came back to
around US$ 120.

Given the underlying uncertainties, especially political,
and low stock levels the oil price is bound to remain
volatile.

Brent premium vs WTI US$ 20 per barrel: supply surplus
for WTI can not be arbitraged away (transport cost).
Source: IHS Global Insight.
Economic Outlook, John Lorié, 15 April 2013 – Slide 24 of 33
Dysfunctional monetary transmission: Eurozone banking woes
Sources: IHS Global Insight; CBOE; Atradius Economic Research.

US supervisory authorities managed to act relatively quickly to restore confidence following the 2008 crisis, the
Eurozone, with its fragmented supervisory system, failed to do so. Eurozone banking system more vulnerable
to shocks.

These indeed occurred, as the sovereign debt crisis escalated. US banks are not very much impacted by the
crisis, which is another reason why they are in better shape especially in the Eurozone since the ECB
intervention.

European bank share prices performed poorly, initially in line with banks in the rest of the world, and since mid
2011 even worse. Current improvement only in line with the world; no gain versus US banks.

Underlying this ill Eurozone banking health are at least two major issues: (i) interbank funding for Southern
European countries and (ii) feedback loop sovereign and banking crisis.
Economic Outlook, John Lorié, 15 April 2013 – Slide 25 of 33
Policy steps have lifted the Euro (somewhat)
Source: IHS Global Insight

The impact of the escalating sovereign debt crisis is evident from July 2011 in the Euro dollar rate, just like the
dollar benefits from increasing risk aversion as well (US is seen as a safe haven).

The pressure, however, has waned since the ECB intervention in 2012. Pressure briefly returned in before June
2012 (the Greek election drama) but was countered by Eurozone policy measures. Also US Q3 provided a non
negligible role.

A lower Euro provides an impetus to exports, mitigating the real effects of the crisis.
Economic Outlook, John Lorié, 15 April 2013 – Slide 26 of 33
The momentum for 2012 fared badly…
Consensus GDP growth forecasts for 2012
Percent
(Monthly forecast revisions since January 2011)
4
4
3
3
2
2
1
1
0
0
-1
France
Germany
Netherlands
Euro zone
United Kingdom
United States
-1
-2
-2
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Source: Consensus Forecast. Note: Evolution in Consensus GDP growth forecasts for 2013 across 20 consecutive surveys (January - November 2012).

This is a detailed picture of what was shown for the advanced markets: growth forecasts have aggressively been revised
downward since the Eurozone tensions escalated Mid July 2011 and financial markets went into turmoil.

For 2012 this process seems to have slowed for the Eurozone as a whole, whereas for a number of countries it has even
bottomed out, even for The Netherlands. For the UK the notable worsening has not stopped yet.
Economic Outlook, John Lorié, 15 April 2013 – Slide 27 of 33
…but for 2013 stabilisation for some Southern European countries
Consensus GDP growth forecasts for 2013
Consensus GDP growth forecasts for 2013
(Monthly forecast revisions since January 2012)
(Monthly forecast revisions since January 2012)
3
3
2
2
1
1
0
0
-1
-1
France
Germany
2
2
Italy
Netherlands
Spain
Percent
Euro zone
1
Percent
1
United Kingdom
United States
0
0
Greece
-2
Portugal
-3
-1
-4
-2
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
-3
Spain
-1
-2
-2
Italy
Euro zone
-5
-4
-5
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Source: Consensus Forecast. Note: Evolution in Consensus GDP growth forecasts for 2013 across 20 consecutive surveys (January - November 2012).

The LHS graph was already discussed: some momentum for slowdown in the slide of expectations for 2013.

The RHS graph indicates that this also holds for the Southern European countries process, even for Greece.
Economic Outlook, John Lorié, 15 April 2013 – Slide 28 of 33
Meanwhile labour markets continue to perform poorly…
Sources: HIS Global Insight; OECD.

Unemployment rates are still creeping up towards 12% in the Eurozone. Unemployment in the United States has
decreased since the beginning of the year, but it remains at unprecedented (and unacceptable) high levels above
7.5%.

Background: firms remain hesitant to create employment amidst uncertainties about the strength of the recovery and
on average rates of investment growth are too low for the time being.

Eurozone difference in labour market performance across countries is large and growing. Germany for example, with
high export-driven growth and more fiscal headroom to subsidise short-time working and job creation, has
outperformed its peers.

At the same time, Eurozone member countries in the South have continued to deteriorate from already high levels. In
Spain (like in Greece), unemployment has increased to levels well above 25%.
Economic Outlook, John Lorié, 15 April 2013 – Slide 29 of 33
…and confidence indicators down and divergent…of consumers…

Persistent labour market overhangs, together with a weak
wage growth and the upcoming declines in public
spending to be discussed below, help to explain the halt
of growing consumer confidence in the first part of 2011.

Nevertheless, overall consumer confidence in the
robustness of the recovery appears to be reasonably
stable in the Eurozone – until July 2011.

Following that month, confidence nosedived, including
the one of Germany. The latter remains at a relatively high
level, indicating growth (>100). EZ confidence decline
seems to have bottomed out.

UK and US confidence had already declined much earlier
to levels where Eurozone is now at and seem to be
heading up again, but still indicate negative growth.

Confidence indicators in Italy and Spain have further
declined during 2012, and now seem to have bottomed
out just like the EZ . France’s has trailed, but is now in
negative territory. All indicate contraction now.
Sources: Global Insight; OECD.
Economic Outlook, John Lorié, 15 April 2013 – Slide 30 of 33
…and for producers, still

Global industrial confidence has fallen since March 2011.
Eurozone events since Mid 2011 have not helped either,
pushing it into negative territory in early 2012. Some
recovery is now visible.

The level for the US wobbled around an almost neutral
stance in 2012 and has now slipped into negative territory.

The UK indicator is somewhat volatile and indicates weak
growth at this stage.

Confidence levels in Italy, Spain and France have been
trailing the Eurozone average and are all in negative
territory, just like the Eurozone’s.

Confidence levels are improving since Mid 2012,
however.
Sources: Global Insight; OECD.
Economic Outlook, John Lorié, 15 April 2013 – Slide 31 of 33
Expected default levels show finally some stabilisation
Median EDF evolution by country
4.5
4.0
4.5
Germany
4.0

Expected Default Frequencies (EDFs) have
moderated until mid 2011 and then started to climb
again, both in North America and across major
European countries. In particular Italy saw a fairly
steep increase.

Measures still reflect a rather high level as well, but
have declined considerably since Mid 2013. The
EDF of the pool of large firms in the listed corporate
universe are indeed moving towards default risk
levels 5 years ago. France and Italy however still
have markedly higher levels.

This trend across Eurozone markets is directly
affected by the call in the financial markets following
the ECB Mid August statement, which has give a
boost sto stock markets. Still, EDFs for Greece and
Portugal displaying high, but declining, default
levels. Companies in Greece still run a default risk
higher than 8% over the next 12 months.

Default probabilites of this magnitude, although
improved, have a severe impact on the financial
health of firms and consumers.
Italy
3.5
3.5
Netherlands
Percent
3.0
2.5
3.0
Belgium
United Kingdom
2.5
United States
2.0
2.0
France
1.5
1.5
1.0
1.0
0.5
0.5
0.0
2005
2006
2007
2008
2009
2010
2011
2012
0.0
2013
Median EDF evolution by country
15.0
15.0
14.0
13.0
12.0
11.0
Percent
10.0
14.0
Italy
13.0
Portugal
12.0
Greece
11.0
Spain
10.0
9.0
9.0
8.0
8.0
7.0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
2005
0.0
2006
2007
2008
2009
2010
2011
2012
2013
Sources: Moody’s KMV Credit Monitor; Atradius Economic Research.
Note: The EDF represents a measure for tracking default risk among stock
listed companies. Combining balance sheet and stock market information
for a particular firm yields a 1-year ahead default forecast. The median
EDF represents the 50th percentile in the firm aggregate of interest.
Economic Outlook, John Lorié, 15 April 2013 – Slide 32 of 33
Summary of insolvency environment: levels and dynamics
Insolvency matrix for 2013
Deteriorating
Sweden
Australia,
Netherlands
Belgium, France,
Greece, Italy,
Portugal, Spain
Austria,
Switzerland
Denmark
Stable
Finland, Japan,
Norway
Improving
Canada,
Germany, New
Zealand
United States
Ireland,
Luxembourg,
United Kingdom
Low
Average
High

Anticipated stabilisation in the insolvency
environment is fully consistent in general with
GDP growth in 2013 (flat versus 2012).

Table shows the advanced economies
classified in terms of the level of commercial
risk together with their forecasted performance
this year.

Quite a few countries are expected to see an or
improving insolvency rate this year, the majority
of countries’ rate will be stable. Only the ones
for Greece and Italy worsen. The high
insolvency remains dominant.

Heterogeneity across European countries
markets is evident. Greece and Italy are
expected to experience an insolvency increase
whilst already on very high levels. But Portugal
and Spain will be stable, and Ireland even
improves. All, however, remain at high levels.
Source: Atradius Economic Research.
Note: This assessment is based on the outcome of statistical models and expert opinion. The
categories ‘Low’, ‘Average’ and ‘High’ describe our perception of absolute default risk across different
countries. For example, any country classified as belonging to the ‘Low’ category in the table was
associated with a perceived low default rate in 2010. The default rate is here defined as the fraction of
business failures in the entire pool of firms in a country measured within a calendar year. The buckets
‘Improving’, ‘Stable’ and ‘Deteriorating’ further describe how we project insolvencies to develop in
2011, as illustrated in the previous forecast tables. All views expressed here are those of Atradius
Economic Research.
Economic Outlook, John Lorié, 15 April 2013 – Slide 33 of 33
Atradius Economic Research
David Ricardostraat 1
1066 JS Amsterdam