Weekly Export Risk Outlook


In the headlines:
- Wo​rld Economy: IMF revises down its forecasts
- Eurozone: ECB’s dovish forward guidance
- Germany: Mixed growth indicators
- Egypt: Heightened uncertainties


Figure of the week: 195,000 - New job creation in US in June employment report

​World Economy: IMF revises down its forecasts

The IMF revised downward its forecasts for global growth in both 2013 and 2014, to +3.1% and +3.8%, respectively (-0.2pps from April 2013) reflecting weaker-than-expected economic performances in both advanced economies (-0.1pps to +1.2% in 2013) and emerging economies (-0.3pps to +5% in 2013). The revisions still point to a divergence within the advanced economies, particularly the deeper-than-expected recession within the eurozone (-0.2pps to -0.6%) and the softness of the US economy (-0.2pps to +1.7%) against the stronger-than-expected GDP growth in Japan (+0.5pps to +2%). Forecasts for the BRICS have been revised down as well, reflecting lower commodity prices, slower external demand growth and tighter financial conditions. Global trade is now expected to grow at a slower pace in 2013 (+3.1% after +2.5%) and to pick up in 2014 (+5.4%). All in all, the IMF scenario remains slightly more optimistic than EH, notably with regard to the advanced economies.

Eurozone: ECB’s dovish forward guidance

The ECB surprised positively by adopting a new communication strategy following its latest meeting. The new forward guidance (’key ECB interest rates to remain at present or lower levels for an extended period of time’) aims at restoring confidence in eurozone markets and helping recovery in investment through lower cost of credit. EH expects the ECB to lower its key interest rate by year-end on the back of a subdued outlook for underlying inflation in the medium term (below 2%) and to announce further unconventional measures to support bank lending (LTROs). As suggested by the ECB, the key drivers for further measures are based on the inflation outlook, economic growth and monetary dynamics (including yield curve and credit to the private sector). In parallel, the BoE seems to be following the same strategy, with dovish forward guidance to keep interest rates at low levels and fuel the economy.

Germany: Mixed growth indicators

New orders received by the industrial sector were disappointing in May, falling by -1.3% mo/mo, following -2.2% in April. Foreign demand declined at a slower pace (-0.7%) than domestic demand (-2%) in May, with a continuing significant fall in demand from the eurozone (-3.9% after -3.5% in April), although an increase in orders from countries outside the Eurozone was recorded (+1.1% after a slight dip in April of -0.2%). Moreover, industrial production was down by -0.7% in May after +1.6% in April, including lower output in the clothing industry (-5.7%), machinery (-4.4%) and automotive suppliers (-3%), while chemicals (+5.1%) and the computers and electronics industry (+2.8%) recorded higher output. In addition, production in construction was down by -2.6% in May after +8.3% in April. By contrast, the Ifo Business Climate Index continued to brighten in June, albeit by a modest rate of +0.2%, following +1.2% in May.

Egypt: Heightened uncertainties

Following last week’s ousting of the elected president, Mohamed Morsi, the military installed Adli Mansouri, a leading judge, as interim leader to oversee a period until new elections are held. A new PM was also appointed, Hazem al-Biblawi, a liberal economist, who will head a broad-based cabinet. To date, US aid has not been halted and Saudi Arabia and the UAE have pledged USD8 billion in additional support. However, demonstrations by pro-Morsi supporters and a general crackdown by security forces have engendered a hostile and fragile environment, with significant downside risks for the country and region. To prevent further escalation, the new regime needs to adhere to pledges of an all-inclusive political system (although the arrest of leaders of the Moslem Brotherhood does not suggest this will materialise in the short term), hold elections as quickly as is expedient and (somehow) improve overall welfare against a very weak economic background. No easy task.