<strong>Euler</strong> <strong>Hermes</strong> Economic Outlook no. 6 | 2011 - Global Sectors Review International Business sectors forecasts World United States Canada Japan Eurozone Germany France Italy Spain Netherlands Belgium United Kingdom C<strong>en</strong>tral and Eastern Europe Russia Asia China Latin America Mexico Brazil Food products and beverages Consumer electronics Pharmaceuticals Automibiles Automotive compon<strong>en</strong>ts Rail and aeronautics equipm<strong>en</strong>t Machinery and equipm<strong>en</strong>t Manufacture of IT & telecoms equipm<strong>en</strong>t Paper and pulp Chemicals Steel Semiconductors and compon<strong>en</strong>ts Construction Distribution Air transport IT & telecoms services Source: <strong>Euler</strong> <strong>Hermes</strong> 4
Economic Outlook no. 6 | 2011 - Global Sectors Review <strong>Euler</strong> <strong>Hermes</strong> Global economic recovery continues, but in many countries industrial output has not caught up to pre-crisis levels, and new threats are arising Overview: slower growth Economic recovery continues quarter after quarter, ev<strong>en</strong> though significant geographical or sectoral disparities persist. The impact of the crisis has not fully receded, however, and many countries, including those in the OECD, have yet to return to pre-crisis industrial output levels. The emerging countries, by contrast, continue to post growth rates of close to 10%, g<strong>en</strong>erating overheating in commodity prices, notably in agricultural commodities and oil, and this is not without risk for some still vulnerable industries, also contributing to inflationary increases that, in a time of austerity, will be hard for economies and households to cope with. Curr<strong>en</strong>t situation: unev<strong>en</strong> recovery Our review bears witness to a widespread recovery in sectors, although some still show evid<strong>en</strong>ce of weakness. This is the case particularly in construction, a sector that is emblematic of households’ confid<strong>en</strong>ce in their future and in the economy’s. Spain and the United States have yet to absorb their excesses of the pre-crisis years, and one may fear that it will take seve- ral years before the number of construction starts begins to rise. This is also the case to a degree in the automotive sector, fuelled these past two years by the braz<strong>en</strong> growth in the Chinese market (new registrations doubling betwe<strong>en</strong> December 2008 and December 2010). The auto sector is expected to grow by 3% to 4% in 2011 (against 25% in 2010), with a surprising stagnation in the Chinese market. Upstream, however, compon<strong>en</strong>t suppliers are profiting from their global pres<strong>en</strong>ce and from the ext<strong>en</strong>sive restructuring they carried out during the crisis, and they will show high levels of profitability and str<strong>en</strong>gth<strong>en</strong> their bargaining power. The same goes for the major players in the chemicals sector, in the <strong>en</strong>d only lightly bruised by higher priced inputs, notably oil. Other sectors seem to have mostly escaped the crisis, avoiding with any g<strong>en</strong>uine chall<strong>en</strong>ges. The agrifoods industry, with rising volumes by the year, needs to absorb the viol<strong>en</strong>t price rises in agricultural commodities. The pharmaceuticals industry similarly <strong>en</strong>joys structural growth, but will need to adapt its business model as drug pat<strong>en</strong>ts expire and fall into the public domain, accompanied by the rise of g<strong>en</strong>eric medicine manufacturers. As for consumer electronics and IT, their growth will come from their ability to innovate. Lastly, aeronautics, a privileged industry, <strong>en</strong>joys <strong>en</strong>viably strong order books, as shown once more at the latest International Paris Air Show. Outlook: the chall<strong>en</strong>ge of mountainous debt For the remainder of this year, and for 2012, large-scale austerity measures aimed at cutting the mountains of public debt to be paid off will reduce household purchasing power, already hit by rising inflation rates. Domestic demand is thus likely to erode, bringing lower sales volumes for consumer goods manufacturers, largely located in emerging countries – notably China – and for, of course, the distribution sector. The growth contribution from investm<strong>en</strong>t could therefore also slow. We will watch developm<strong>en</strong>ts in coming months very closely._YL Keys to symbols Global risk AA Global risk A B Global risk Global risk C Global risk D Positive fundam<strong>en</strong>tals and outlook Fairly good outlook Signs of weaknesses Structural weaknesses Immin<strong>en</strong>t or recognised crisis Our business sector forecasts are founded upon the microeconomic expertise of <strong>Euler</strong> <strong>Hermes</strong> group underwriters and analysts, who closely monitor risk in companies worldwide through our network of more than 50 local subsidiaries. This results in a qualitative assessm<strong>en</strong>t of the health and outlook of a sector. G<strong>en</strong>erally, although not in every case, this assessm<strong>en</strong>t includes growth forecasts for a giv<strong>en</strong> sector. We focus more on the health of businesses (in terms of margins and solv<strong>en</strong>cy) than on their growth in turnover. o 5
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