www.pwc.com/ch Free Trade Agreements – a global perspective March 2015
Agenda Part 1 Introduction by Ambassador Thomas Kupfer Part 2 European Overview Part 3 Free Trade Agreement – an overview Part 4 Practical and operational challenges in Free Trade Agreements Part 5 Future Free Trade Agreements Part 6 Q&A - Closing 2 PwC
Introduction by Ambassador Thomas Kupfer Free Trade Agreements 3 March 2015 PwC 3
European Overview Free Trade Agreements 3 March 2015 PwC 4
Evolution of the Euro crisis Late 2009: Increasing government debt Public debt as % of GDP Public debt as % of GDP Early 2010: Intensified concerns in certain 180 stimulation European countries May-2010: 1 st Greece bail-out package ( € 100bn) Greece 160 Creation of European Financial 140 Stability Facility (EFSF) Italy 120 Nov-2010: Ireland bail-out package ( € 67.5bn) Portugal US % of GDP 100 France Jan- 2011: Created European Financial Spain 80 Germany Stability Mechanism (EFSM) 60 Switzerland May-2011: Portugal bail-out package ( € 70bn) 40 Luxembourg 20 Oct-2011: 2 nd Greece bail-out package ( € 130bn Estonia 50% write-off Greek debt € 100bn) - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Austria Belgium Cyprus Jun-2012: Spain bail-out package ( € 100bn) Estonia Finland France Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovak Republic Slovenia Spain Switzerland US Mid-2013: Replace EFSF & EFSM with European Stability Mechanism (EFM) Source: IMF Free Trade Agreements 3 March 2015 PwC 5
EU Growth forecast European Union % GDP Growth, 2000 - 17 2015 – 17 Brighter outlook: 2014 Slow recovery: Sharp decline in oil prices Unfinished macroeconomic adjustment Depreciation of the Euro Slow implementation of reforms ECB’s QE easing and EU Investment Plan Failure in recovery of investments % GDP Growth 4.0 3.5 3.0 EU 2.5 UK 2.0 US 1.5 1.0 0.5 0.0 2000 - 05 2006 - 09 2010 2011 2012 2013 2014 2015 2016 2017 -0.5 -1.0 Stimulating Growth Restricting Growth Key Risks • Decreasing costs for input factors • Lack of economic and social reforms of • Greek’s EURO exit and bankruptcy • UK’s EU exit and cancellation of (e.g. oil, metals) EU member states weakens • Weakened Euro increasing competitiveness agreements • Uncertainty with outcome Ukraine / • Economic sanctions and energy supply competitiveness of EU products and services Russia crisis (Sanctions) disruptions relating to the Ukraine / • Increasing consumers purchasing power • Countries debts and cost cutting Russia conflict • Armed conflicts between EU/US and stimulating private consumption programs negatively impact domestic • ECB quantitative easing and EU growth Russia • Unemployment rate and high economic • Increasing nationalisms in the member economic programs stimulating investments and demand uncertainty cause social unrests and states with negative impacts on workforce prevent long-term investments mobility and availability Sources: European Commission, IMF, World Bank, Oanda, Bloomberg, Reuters,Scotiabank, PwC Analysis 3 March 2015 PwC 6
Over the next 3 years the EUR is expected to meet the USD value 2014 - 15 2015 – 17 Brighter outlook: US$/Euro Exchange Rate, 2010 - 17 18% depreciation against US$ Improve price competitiveness of Deviation of US monetary European companies policy from EU Further hike inflation in 2016 Euro 1.2 1.00 0.95 1.0 0.86 0.75 0.75 0.73 0.70 0.78 0.8 0.6 0.4 0.2 0.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Sources: European Commission, IMF, World Bank, Oanda, Bloomberg, Reuters,Scotiabank, PwC Analysis 3 March 2015 PwC 7
The impact of a Grexit on the EU growth significantly decreased in the last two years 2014 Rebound to growth: Greece Rising private consumption % GDP Growth Strong growth in exports, tourism & shipping 6 4 2 0 2000-05 2006-09 2010 2011 2012 2013 2014 2015 2016 2017 -2 -4 -6 -8 2015 - 17: Implementation of agreed structural reforms -10 EU Greece Exports growth due to euro depreciation % of GDP 200.0 176.3 171.3 174.9 170.2 180.0 160.0 156.9 159.2 140.0 148.3 152.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 Govt Gross Debt Total Govt Revenue Assessment of Grexit: • 20 – 25% chance of Grexit in 2015 • EU: Minimal impact - 2% share of EU 2014 GDP • Greece: • Restore wealth level by mid 2020s without Grexit • Huge growth in inward investments with Grexit 3 March 2015 Sources: European Commission, IMF, World Bank, IEA, ING, Bloomberg, Reuters, Independent UK, PwC Analysis PwC 8
The UK is significantly contributing to the EU growth, however an exit would reduce the UK’s ability to influence and serve EU markets United Kingdom 2014 Solid growth: Strong domestic demand % GDP Growth Formation of gross fixed capital 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000-05 2006-09 2010 2011 2012 2013 2014 2015 2016 2017 -0.5 2015 - 17: -1.0 Reduction in oil prices Buoyant private consumption Continued growth in investment UK EU % GDP Growth Impact of Brexit 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 2000-05 2006-09 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -1.0 UK leaves EU EU Assessment of Brexit: • EU: Significant impact - 9% of EU 2014 GDP • UK: • Spike in inflation, 2.8% by 2018 • Cuts in economic growth • Quicken formation of FTA agreements Sources: European Commission, IMF, World Bank, IEA, ING, Bloomberg, Reuters, Independent UK, PwC Analysis 3 March 2015 PwC 9
Russia sharp slowdown spills over to CIS CIS, Ukraine & Russia % GDP Growth, 2000 - 17 2014 Sharp deceleration: 2015 – 17 Moderate recovery : Geopolitcal tensions – Russia & Ukraine Russia & Ukraine: Oct 14 Ceasefire agreement Spillovers from weakness in Russia & Europe Modest recovery in Euro area demand % GDP Growth Ukraine: Uncertain outlook, 2016-17 recovery dependent 10.0 on relief of geopolitical tensions 5.0 Russia Ukraine 0.0 2000 - 05 2006 - 09 2010 2011 2012 2013 2014 2015 2016 2017 CIS -5.0 -10.0 World Crude Oil Prices, 2010 - 20 US$/ Rouble Exchange Rate, 2010 - 17 Rouble US$/barrel 120.0 70.0 63.0 63.5 104.0 105.0 104.1 60.0 100.0 96.2 60.0 72.6 50.0 80.0 79.0 70.9 72.1 68.0 63.9 56.7 65.0 69.4 74.1 40.0 35.2 60.0 29.8 29.2 30.2 56.9 60.8 29.9 53.2 30.0 40.0 20.0 20.0 10.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0.0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Historical World Bank IMF Russia 2015 – 17 Outlook 2014 - 15 Severely impacted by global decline in oil prices Dependent on geopolitical tensions & sanctions 80% depreciation of Rouble against US$ If low oil prices continue: • Huge pressure on the budget, limiting GDP growth Retaliatory sanctions hike inflation • Large foreign currency reserve funds tides it through the short-term if sanctions are removed Sources: IMF, World Bank, OPEC, Oanda, Bloomberg, Reuters, Forbes, Scotiabank, PwC analysis 3 March 2015 PwC 10
Risks to consider when investing in EU Key Trend / Consequences PwC Publications Countries Topic • Recession in Greece and possibly Eurozone • Increased spread for other Mediterranean countries, leading • Interview with Andreas Riris, GREXIT to more austerity measures and a decrease in governmental PwC Greece Partner spending • 2015 Predictions for UK • UK loses access to EU markets, making it more difficult for economy BREXIT UK firms to sell goods to continental Europe • UK Economic Outlook, Nov 2014 • Investments in Europe would become less valuable in home EUR/USD currency, however, could pay off as companies • EU and US trade embargo against Russia renders investments in Russia less valuable and hits companies • Meeting the challenges of crisis Ukraine crisis exporting to Russia hard in Ukraine • Exports to and production in Ukraine difficult due to ‚civil war‘ Surge in • Danger of reinstatement of border controls and limits to popularity of freedom of movement or residence can be the result of nationalist nationalist movements in EU countries parties Free Trade Agreements 3 March 2015 PwC 11
What does that all mean to your business? Free Trade Agreements 3 March 2015 PwC 12
CEOs are more optimistic about mature markets this year 2015 2014 2015 2014 Q: Which countries, excluding the one in which you are based, do you consider most important for your overall growth prospects over the next 12 months? Source: PwC 18th Annual Global CEO Survey Free Trade Agreements 3 March 2015 PwC 13
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