Euler Hermes: Finally, good news on global trade

This is a stark turnaround to the previous two years when the value of global trade in goods and services contracted. The value of global trade lost close to $3 trillion between 2014 and 2016 after a collapse in commodity price and a series of shocks, including a stock market rout in China and political surprises such as Brexit.

In the latest annual report, Euler Hermes projects that global trade value will recover the lost $3 trillion by 2018 with strong demand growth coming from emerging Asia, the euro zone and the U.S in particular. They also believe 2017 marks a turning point that will see demand growth pick up speed and commodity prices recover.

“We expect global output to accelerate slightly above 3 percent,” says Ludovic Subran, chief economist at Euler Hermes. “This will be the first time since 2011 this has occurred, and should see the investment cycle in advanced economies move onto a stronger footing. China’s economy will remain firm and the pressure on commodity exporters will be relieved by rising prices.”

Growth in volume
of global trade
in 2018

Growth in world trade is typically faster than growth in global output.  Between 1985 and 2007 trade volumes were around twice the rate of global output. Since the global financial crisis there has only been a fractional difference in growth between the two and this is set to continue, not least because of an increase in protectionist measures, particularly in the United States and India. More than 400 new protectionist measures are expected worldwide this year.

 “Financial ‘balkanization’ also remains a concern,” comments Subran. “Global cross border bank lending contracted by 2 percent in the second quarter of 2017, year-on-year. Policies in advanced economies, such as lower corporate tax in the U.S., may also divert capital from emerging markets.”  

The Euler Hermes Economic Outlook also notes that the normalization of monetary policy in advanced economies may lower hard currency availability and raise funding costs for emerging markets. Increasing tension in geopolitical hotspots, such as the Korean peninsula and the Gulf Cooperation Council in the Middle East, could also undermine any improvements in trade.

Ludovic Subran, Chief Economist, Euler Hermes
Ludovic Subran, Chief Economist, Euler Hermes
New protectionist measures by country

400 protectionist
measures to be
in 2017

Euler Hermes believes that there are developments that could support corporate growth in the years ahead. First, investment flows are set to recover by 3 percent in 2018 backed by stronger corporate balance sheets, better investor sentiment and large infrastructure projects.

In addition, even if the energy seems to have drained from globalization, corporates may still benefit from new free trade agreements made between countries, such as the Regional Comprehensive Economic Partnership in Asia, which includes the 10 ASEAN member states as well as Australia, China, India, South Korea and New Zealand.

In specific sectors, Euler Hermes assess that increasing pricing due to rising demand in both advanced and emerging markets will strengthen primary commodities. In particular, energy is expected to post strong gains of $578 billion over 2017 and 2018.

Electronics are expected to gain $406 billion and electrical products exports $193 billion driven by accelerating private consumption in emerging markets, especially in Asia. Finally, machinery and equipment (+$168 billion), and chemical (+$134 billion) are set to strengthen gradually on the back of higher investment cycle and rising industrial production.

In the eight country assessments provided in the report, Euler Hermes notes that while the UK will benefit from an upswing in Europe, the sharp depreciation of Sterling following last year’s Brexit vote has had no measurable effect. Exchange rate volatility and Brexit related uncertainty in the run-up to the formal European Union exit date (March 2019) will continue to dampen any UK Export dynamics in 2018.

“It obviously will not take much for global trade to be battered by headwinds again,” says Subran, “But we are firmly positive that the situation is improving.”

Euler Hermes is the global leader in trade credit insurance and a recognized specialist in the areas of bonding, guarantees and collections. With more than 100 years of experience, the company offers business-to-business (B2B) clients financial services to support cash and trade receivables management. Its proprietary intelligence network tracks and analyzes daily changes in corporate solvency among small, medium and multinational companies active in markets representing 92 percent of global GDP. Headquartered in Paris, the company is present in over 50 countries with 5,800+ employees. Euler Hermes is a subsidiary of Allianz, listed on Euronext Paris (ELE.PA) and rated AA- by Standard & Poor’s. The company posted a consolidated turnover of 2.6 billion euros in 2016 and insured global business transactions for 883 billion euros in exposure at the end of 2016.

Further information:, LinkedIn or Twitter @eulerhermes.

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Jean-Baptiste Mounier
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