The BRICS are falling and some could get hurt, export credit insurer Euler Hermes (Courbevoie / France; www.eulerhermes.com) warns in its report “Euler Hermes Economic Outlook 2015-16”. After a five-year love story with the fastest-growing part of the world, the time has come for a reality check, the report’s author, the insurer’s chief economist, Ludovic Subran, says. Large current account deficits, a vulnerable private sector and a highly politicised reform agenda have created a “perfect storm” for emerging markets, with capital outflows, volatility and credit risks on the rise. Subran predicts that 2015 will be remembered as a turning point, when the world realised that emerging markets are called emerging for a reason.

If, as the insurer suggests, six consecutive years of decline in global insolvencies – by 14% – come to an end in 2016, countries such as Brazil, Russia, India, South Africa, Turkey and Nigeria will feel the crunch. This, it says, is because growth in the recovery years was not robust enough to offset the earlier sharp rise in bankruptcies between 2007 and 2009.

Altogether, the Global Insolvency Index remains higher by 3% than its pre-crisis average. Two out of three countries, particularly in emerging markets, remain above pre-crisis levels for insolvencies and half could see an increase in bankruptcies in 2016, Euler Hermes adds, predicting that the index will decrease by only 4% this year.

Companies in Asia Pacific are seen as being the most endangered by the worsening outlook. China in particular is struggling, with anticipated increases in insolvencies of 25% in 2015 and 20% in 2016. Construction, metals and mining, low-end manufacturing and export-related industries are regarded as likely to take the biggest hit. The outlook for the US and western Europe, where, on average, bankruptcies are expected to decline by 10% this year, looks brighter; however, the report warns that the picture here is not homogenous, either. While countries such as Germany, the UK and the US already enjoy historically low insolvency levels, others, such as France or Italy, are struggling to come down significantly from the currently higher level. But even in the industrial powerhouses US and Germany, the rate of bankruptcies may not fall, the report suggests. In Europe altogether, some markets, such as construction, remain at risk.

Euler Hermes also raises a red flag about the outlook for the world economy in general, with global growth rates seen as losing momentum. The next 18 months “will be quite a litmus test,” the report’s author predicts. While the slowdown in emerging markets is certainly not good news for export-oriented western European players, the insurer says it remains confident that this will be positively offset by domestic drivers. The continued European recovery will remain slow, however, due to the high levels of indebtedness in some countries as well as the state of the labour market and uncompleted structural reforms. What’s more, both public and private investment are lagging in some core countries.

e-Service:
"Euler Hermes Economic Outlook no. 1220-1221 – The insolvency U-turn" (Sep-Oct 2015) as a PDF file
“Euler Hermes Economic Outlook no. 1213 – International debt collection” (Dec 2014) as a PDF file