That 2016 was another year with global economic growth of around three per cent is unlikely to be the first thing that history records about last year. History will note the sequence of political events that have managed to surprise both analysts and others. The norms that were established after the end of the second world war on trade liberalisation, regional integration and, since the fall of the Soviet Union, reduced tensions between major powers have been brought more and more into question. Perhaps most unexpected was that citizens of the two countries that have led the economic
liberalisation and intergovernmental collaboration of recent decades - the USA and the United Kingdom - would step back from this development.
Free trade and migration have most strongly and clearly been questioned by the new president of the USA, Donald Trump. The election of him as president reflects a broader questioning of the political establishment. Many voters feel that less regulated trade is an important cause of jobs moving to other countries. That a majority of British voters chose to support “Brexit” from the EU is an expression of the same spirit that prevails in the USA. The consequences of the changes in American and British politics will be seen in the coming year.
The unexpected political events during the year did not affect global economic growth. During the present decade, annual growth has swung between three and four per cent. The forecast from the International Monetary Fund for 2016 is a growth of 3.1 per cent in the global economy. Global trade in goods and services is now growing at a slower pace than the global economy, with an estimated increase of 1.9 per cent
for 2016. The downward swing in the pace of growth in global trade means that for Sweden, as a country that depends on exporting, exporting companies are meeting tougher competition.
Trends in the global economy and in world trade are two factors that affect the scope of EKN’s issuing of guarantees. A factor that is at least as important is the way in which the financial markets function, and thus the cost of bank loans and bonds. Risk premiums for bonds have fallen in 2016. Expansionary monetary policy in many OECD countries is contributing to good liquidity in the financial system.The low return on government bonds has led to investors turning to interest-bearing assets with a higher risk and thereby higher returns, which in turn has led to lower risk premiums.
Economic growth among the high-income countries will not reach the bare two per cent that was the IMF’s forecast at the start of 2016. Primarily it has been the American economy that has shown a weaker development than expected. Contributory factors to this have been lower investment, activity in the energy sector and a strong dollar, which has adversely affected export industries. For other high-income countries, growth of around 1.5 per cent can be expected. EKN’s issuing of guarantees for the OECD’s high-income
countries increased by almost 300 per cent, a level that has not been seen since the financial crisis. In spite of good financing opportunities on the market, export credit guarantees have been in demand for larger transactions and projects. One explanation is that borrowers are seeking to diversify their financing. Another might be the desire for stability and predictability in access to and the cost of finance.
Commodity prices have stabilised at a considerably lower level than was the case three or four years ago. This has had negative consequences for commodity exporting countries in Latin America such as Brazil, Venezuela and Colombia. Low prices on global markets have led to weak or even negative economic growth and reduced export earnings. The effects have been even more dramatic in many African countries. The IMF’s growth forecast for Africa south of the Sahara is 1.6 per cent. The previously good years in many African countries have not resulted in more stable development in the longer term. From the Swedish point of view, this had led to reduced exports to the region.
For many countries in the Middle East and CIS regions, low prices on global markets for oil and natural gas have led to weak growth, falling export earnings and reduced resources for the public sector. This in turn affects infrastructure investment and thereby orders for local contractors, which reduces export opportunities for Swedish companies. Russia’s economy shrank by almost four per cent in 2015. The position has stabilised in 2016 and the forecast is that the economy will shrink by perhaps one per cent. During the first eleven months of the year, Swedish exports to Russia fell by three per cent. In total, EKN’s issuing of guarantees to the CIS area was half that of 2015. The issuing of guarantees to Russia accounts for three quarters of the guarantee amount to the CIS. The issuing of guarantees for the Middle East also fell – by eight per cent. The resumption of the issuing of guarantees for Iran was new this year.
As in previous years, Asia tops the growth statistics and the forecast for 2016 is growth of around 6.5 per cent. China is the foremost of the larger countries, at 6.7 per cent. There is nothing to indicate that the high rate of growth is threatened. China’s transition from massive investment in industry and exports to a more service-based economy is taking place in a way that has reduced the pace of growth to levels more normal for emerging economies. The present rate of around
six per cent is more sustainable in the long term than the previous double-digit growth. The healthy economic growth has contributed to the development of the domestic capital markets in many Asian countries. Companies were previously referred to bank loans for their finance. There are now alternatives such as bond issues. EKN’s issuing of guarantees to Asia has been around SEK three billion a year for the last
three years. The lack of major infrastructure projects with export credit finance is one reason why the issuing of guarantees to the world’s hottest growth markets continues to be low.