Economic Outlook - As of March 2010

Overview

Insolvencies

Recovery in the world economy, following an upturn in the second half of 2009, promises to be fragile and strewn with uncertainties over the course of 2010. Given the scale of the economic unraveling seen in winter 2008-2009, recovery threatens to be too weak to genuinely restore businesses’ room to maneuver, especially in the case of persistent financing difficulties. Thus, most countries should continue to see a high level of insolvencies in the first half of 2010 and no outright improvement is expected overall before the second half of the year. For the full year, in Western Europe the number of cases should post a further rise (+3%, after +43% in 2009 and +30% in 2008), but a decline is expected in the number of cases – albeit to still high levels – notably in the United States, Canada, and Brazil, as well as in a number of Asian countries. The Euler Hermes Global Insolvency Index should therefore finish at the same high level as posted in 2009.

Economic Conditions

The year 2010 begins with economic growth prospects that are now positive (apart from in some countries), although this is not the whole picture. All the annual forecasts – the most pessimistic and most optimistic alike – base their findings on the year 2009, one that ended posting what will go down in history as the biggest contraction in the world economy since the end of the Second World War (-2.2% at current exchange rates). Admittedly, the bulk of the setback took place during winter 2008-2009, when the abrupt halt in world trade and collapse in activity for a time raised the specter of a Great Depression. Thereafter, primarily thanks to renewed dynamism in Asia, the world economy returned to growth on a de facto basis from spring and in more manifest fashion in the autumn. But this exit from recession relates more to a technical rebound, even should it continue, than to a sustained recovery. It depends highly, on the one hand, on the growth impulses created by the very expansionary monetary and budgetary policies instituted (especially in the United States and China) and, on the other, on the gradual end of a large-scale movement of destocking. However, these two factors can offer only temporary support. Most importantly, the wellsprings of domestic growth should remain limited for several quarters to come, as the massive fall in world GDP in Q4 2008 and Q1 2009 (at an record annual rate of around -6% in both quarters) generated significant production capacity surpluses and profoundly impacted on employment, especially in the developed countries, most of which are unlikely to return to pre-crisis levels of activity before the end of 2011. Overall, the revival in the world economy will remain modest for the full year 2010 (+2.6%), including a probable slowing in the first half of the year, with world trade following a parallel course (+6% after -11% in 2009). The persistence of many risks and uncertainties makes this recovery all the more fragile in that it could be concentrated in a few small geographical regions or in certain countries, such as China.