PROSPECTS/In an uncertain international context, it is very difficult to have a crystal ball for 2017. Nevertheless, international economists are betting on a return to growth if there is a focus on a very Keynesian recovery policy.
Some have a sixth sense. Brexit and Donald Trump’s election to the White House – Bloomberg financial magazine foresaw all that in its pessimistic guide to 2016. And its disaster forecasts for 2017 are not much more encouraging. In sequence: in France, Marine Le Pen will win the presidential elections and hold a referendum on Frexit, while in Europe we will see the downright end of the Schengen area. The defeat of Angela Merkel in Germany, the victory of Beppe Grillo -leader of the 5 Star Movement, and an exacerbated economic crisis in Greece. Added to this bleak scenario is a US political crisis, ultimately with a Calexit in California as a protest against the lack of environmental measures. And to add the finishing touches to the geopolitical picture, Bloomberg does not exclude that Donald Trump will cancel the US membership of NATO and then the UN, and that Islamic State will extend its influence in central Asia. We’ll spare you the details concerning the fact that, with these alarmist projections, North Korea will be able to provide for its nuclear weapons, or that a scandal will break about listening devices embedded in connected objects manufactured by Amazon, Apple and Google…
Return to growth
Though having a crystal ball and betting on what will happen in 2017 is enormously complex today, economists nevertheless agree to focus on a return to world growth, caused by a powerhouse across the Atlantic. After the shock election of Donald Trump – perfectly cashed in by the financial markets incidentally – analysts want to see the positive sides of the economic policy that the Republican President announced during his election campaign. Donald Trump did indeed promise to lead a major investment plan of around 550 billion dollars in the USA to renew infrastructure.
At the Organization for Economic Cooperation and Development (OECD), as at the IMF and the World Bank moreover, it is believed that this policy, supported by an advantageous tax system, can only foster economic activity and thus growth. Requiring China and Europe to replicate this strategy. According to the OECD, initiatives involving well-targeted public spending could act as a catalyst for private sector economic activity and help the world economy out of the slow growth trap. “After five years of disappointingly weak results, prospects of slightly stronger growth are opening up for the world economy,” OECD Secretary General Angel Gurría said at the OECD World Economic Outlook announcement in late November. He then added, “In the current low interest rate context, policymakers have a unique opportunity to operate budgetary levers more actively to stimulate growth and reduce inequality, without jeopardising debt levels. We call on them to do so urgently.”
3% growth in the US in 2018
Still according to the OECD, there could thus be a turnaround in 2017. Continued or planned shifts in fiscal stance in a number of major economies largely explain the modest growth of world GDP, rising to 3.3% in 2017 and 3.6% in 2018. For 2018, the OECD thus forecasts a strong 3% growth rate in the US – double this year’s figure (1.5%) – and 2.3% for 2017. Japan, which has also adopted a 246 billion euro fiscal stimulus plan, could achieve 1% growth in 2017, whereas the OECD does not see big changes in Europe where the Stability Pact locks budget expenditure at 3% of the deficit. Germany, the eurozone’s largest economy, is therefore expected to remain sluggish at 1.7% from 2016 to 2018. And France at 1.3% in 2017 and 1.6% in 2018.
“For the time being, the market is focused on the positive pro-business effects of Donald Trump’s promises,” confirms the economist Jean-Pierre Petit. “The recovery plan is likely to increase the US federal deficit and growth from the second half of 2017. Deregulation of the energy and health sectors is likely to increase confidence. That’s pretty good for the rest of the world,” the Cahiers Verts de l’Economie chairman believes.
Inflation risk
Only after his inauguration on 20 January, will we see what Trump will really keep from his White House election programme. But the protectionist measures he promised – with an increase in tariffs in particular – are still creating uncertainty about their possible collateral damage. “Protectionism and the inevitable retaliation measures would annihilate most of the beneficial effects of the fiscal stimulus on world and domestic growth,” emphasises Catherine Mann, chief economist at the OECD. Because protectionism goes with inflation. All these measures would then trigger “price rises, harm living standards and lead most countries to a much worse budgetary situation.” Jean-Pierre Petit shares this opinion, “If Trump starts talking about strong protectionist measures again, it could have a recession effect as in the 1930s. But in theory that is a medium-term risk for growth, so not in 2017.”
According to the French economist Jacques Sapir, the author of “L’euro est-il mort?”, it is nevertheless likely to result in another risk arising from US policy. “With fewer resources and more spending, the US 2017-2018 budget could have a 7.5 to 9% deficit. This significant increase in budget deficit will bring about a surge in inflation, and the Fed will raise rates. That will conceivably spread to all industrialised countries as of 2018. It will then offset the beneficial effects of the US economic expansion.” The explanation being, “If US interest rates rise faster and lead to an increase in European interest rates, the beneficial effect from the real sector is likely to be annihilated, with potential tension on the bond markets.”
Busy political calendar in the eurozone
In addition, excluding potential political instability in Europe is now unthinkable. “There are electoral deadlines in Germany, France and Italy. In the three major eurozone countries, which account for 75-80% of the eurozone, elections are taking place in an unfavourable context,” Jacques Sapir points out. Matteo Renzi’s recent resignation following the Italian constitutional referendum is already fuelling every fear about Italy’s future in Europe. “The Italian economy is at the end of its rope. It will have no choice but to leave the euro,” says Jacques Sapir. A risk that Jean-Pierre Petit sweeps away, in contrast. Overall, the economist believes, “there is no credible consensus on dismantling the eurozone. The idea of the eurozone was born in 1988 with the Hannover summit and euros were in our pockets in 2002 – that cannot be destroyed overnight and without agreement! An implosive phenomenon would be massively recessive. We must save the eurozone.” Clearly, we have no choice…
2017, a pivotal year?
ANALYSIS/And if 2017 should be a turning point for globalisation?
Economist Thomas Piketty has no doubt. The key lesson for Europe and the world from Donald Trump’s victory is clear: “It is urgent that we fundamentally reorient globalisation.” Faced with the rise of social inequality and global warning, the author of the bestseller “Capital in the Twenty-First Century” advocates the setting up of international treaties of a new type. Away with CETA and TAFTA (1). “We must stop signing international agreements to reduce tariffs and other trade barriers without including in the same treaty, and from the first chapters, quantitative and binding rules allowing us to combat tax and climatic dumping, such as common minimum rates of corporation tax and carbon mission targets that are verifiable and subject to penalties, for example. It is no longer possible to negotiate free trade agreements in exchange for nothing.” As for the European Union, it too must make a paradigm shift. “Europe was built as a free trade zone without a common fiscal policy. It is time to change the political discourse on globalisation: trade is a good thing but sustainable development and fair development also require public services, infrastructure, education and health systems, and they themselves call for fair taxes.”
Brexit shock
Thomas Piketty is far from being the only one to deliver this speech today. In his testament political speech in Athens, US president Barack Obama said inequalities are “one of the biggest challenges for our economies and our democracies,” hoping for a “change of course” in globalisation. At the Valdai Club in Sochi, Vladimir also stated in essence that globalisation was created for the benefit of a few at the expense of the majority. And that we are at a turning point, due to the rise of populist movements and the anger of peoples…
“7 to 8 years ago, first there were quiet signals such as the failure of the World Trade Organization (WTO) Doha Round, which saw the majority of negotiations blocked. Now there are loud signals. Prior to the election of Trump, Brexit was a very major shock for the European institutions. The Chinese have decided to establish important limits on the export of capital. While at the last BRICS summit, we clearly saw questions arising on the different forms of financial and trade integration,” the economist Jacques Sapir points out. The co-author of “L’euro est-il mort?” does not beat around the bush (1). “The EU is deeply divided today and is breaking up. Be it on economic fundamentals, the issue of migrants, or what stance to take regarding Russia. What can it rebuild itself around? The euro is both the only instrument and one cause of the problem. We can no longer require a country to meet targets for public debt, external deficit and a fixed exchange rate. The solution is exchange rate flexibility. Otherwise there will be a very high unemployment rate and that is politically untenable,” believes Jacques Sapir, who alludes to a customisable Europe. “2017 will be a pivotal year and things won’t stop there,” the economist warns.
(1) Free trade agreements between the European Union and Canada on one hand and the United States on the other.
(2) Editions du Rocher. 240 pages. 18.90 euro.
“Buy Trump’s friends and sell his enemies!”
INVESTING/Gold, technology securities… CFM Indosuez gives its investment advice.
In the CFM Indosuez trading room, around thirty managers, traders and advisors make up one hell of a hive of activity. It’s a 300 square metre set, animated by financiers’orders and TV screens showing Bloomberg TV on a loop. This December the atmosphere is much calmer than the day after Brexit or the 2008 subprime crisis. “Despite the referendum in Italy, the eurozone is stable with a European Central Bank minding the store,” says Stéphane Herpe, director of the markets, marketing and development department at CFM Indosuez. Open every day of the week – except for 25 December and 1 January – from 8 a.m. to 7 p.m., the room acts according to the investment scenarios designed by the analysts of the Indosuez Wealth Management group. And particularly chief economist Marie Owens Thomsen. For 2017, the expert first scans the situation with a view to the leanings of the White House’s future tenant. “Donald Trump is the first president with as many investment goods abroad, from Vancouver to Rio and on to Dubai. In portfolios, buy Trump’s friends and sell his enemies!” If we rely on ‘candidate Trump’s’speeches, the new White House tenant’s friends are therefore, lumped together, Russia, domestic companies, fossil fuels, mining operations, coal, banks, construction and real estate. And his enemies? China, Mexico, Canada, international companies and the health sector. In the end, according to the chief economist, on the holdings side “It’s better to hold gold and safe currencies. “Want to bet on oil? “The potential for appreciation of oil prices is a scenario limited to 45-55 dollars a barrel,” Marie Owens Thomsen believes.
Volatility
On the investment side, Sébastien Fillaut, head of discretionary management, is counting on portfolio diversification. “In a 3% world growth context, the macroeconomic environment remains positive, especially for the share and credit market. However there is a risk of inflation in the US and the UK, but also the risk of less accommodative monetary policy and increased volatility.” “Given this rise in inflation and rates, we will seek investments which benefit from higher rates,” explains Laurent Jeannel in turn. “For portfolio shares, the Trump presidency represents a strong boost for US shares. There is clearly a surge in S&P, and Nasdaq is neutral. Cyclical and value securities will be supported by the Trump environment,” the CFM Indosuez advisory manager continues. The expert therefore advises selecting securities based on their value-creation rather than their growth. “Since 2008, US growth technology stocks have performed. They still support the current digital revolution but we must be more selective in the choice of securities.” Obviously the share, bond and derivative securities advice depends on each client, according to their portfolio type and the risk level that each client is willing to accept. Other experts are openly displaying their choices for 2017, recommending Bank of America, Allianz, and Norfolk, the US railway linked to coal cargo. Or Schlumberger and Toray.
* Indosuez Wealth Management is the Crédit Agricole group’s Wealth Management entity.
Smart Homes: a market undergoing a revolution
ECOLOGY/Nouvelle Ere, founded in 2008, rides on energy transition. According to its CEO, Salvatore de Luca, the total market turnover for energy storage and smart homes is expected to rise 20-30% in 2017.
It is not only Elon Musk, the iconic patron of Tesla, who offers batteries for homes and businesses. Riding on energy transition, companies offering energy storage solutions are growing at a frenetic pace. In Monaco this is the case of the Nouvelle Ere company (Ecological renewable energy), founded in 2008 during the financial crisis by Salvatore de Luca. The SARL, quickly transformed into a SAM, started by designing and financing photovoltaic power plants. Initially benefitting from public investments, it developed in Italy and England. When the public subsidies declined, Nouvelle Ere changed course. Its Italian leader, who lives in Monaco, abandoned investment funds for SMEs, offering them smaller renewable energy installations. “In all, we have installed 100,000 photovoltaic panels and around twenty wind turbines. So, approximately 2000 installations since 2008,” Salvatore de Luca notes. The energy storage market is buoyant.” From 2015 to 2016, the number of projects rose from 2,000 to 12,000 in Italy and turnover from 10 to 60 million, for example. And there is talk of 50,000 transalpine projects in 2017! In the United States the number of projects has positively risen from 120,000 to 300,000, with turnover doubling from 300 to 600 million euro!” This expansion is logical: solar photovoltaic energy is the most promising option in urban areas, in cost terms particularly. According to Ademe, in France solar photovoltaic panels on roofs – that could account for up to 364 GW – could cover almost 80% of the country’s electricity needs, if they run at full capacity.
Simultaneously, a couple of years ago Nouvelle Ere decided to focus on smart homes and to offer integrated systems for renewable energy generation. “We identify algorithms able to make the best use of the energy generated in our customers’power plants. Software checks the energy consumption during the day.” The rationale is that own production is the trend. In France, individuals with solar panels on their roofs or a hydroelectric power plant connected to a mill, for example, had to send the energy generated to the power grid. Since 2016, and within the framework of the energy transition law, they can now consume the energy they have generated. Connected tools allow housing and towns to be made ‘smart’. For example, Nouvelle Ere offers a home automation system allowing each device connected to the home to be managed, also incorporating an air quality sensor and promising savings of 25% “In 2016 there were 50,000 smart home projects in Italy and 500,000 in Europe. For 2017 we forecast 20-30% more.” Maybe entering the Monegasque market too.
Star Clippers: A flagship in 2018
TOURISM/Star Clippers, that offers cruises on replicas of legendary sailing ships, is showing good growth.
In the cruise sector, Mikael Krafft has chosen ultra luxury. The former Swedish lawyer, who has also adventured in oil, property and finance, launched his first boats 25 years ago. His Star Clippers company, based in Monaco since 1996, specialises in replicas of legendary 19th and 20th century sailing ships. This passion for sailing began in the childhood of this businessman who grew up near childhood the port of Saltsjobaden on the Baltic shore. “I used to spend all my spare time at Plyms Shipyard, where luxury boats were built… it fascinated me,” he explains today with the same enthusiasm. After his two first four-mast barquentines, the Star Clipper and the Star Flyer (170 passengers each), in 2000 Krafft sailed the Royal Clipper – 134 metres, with a steel hull, five masts and 42 sails. But the largest sailing ship of its kind in the world (with capacity for 227 passengers and a crew of 106) is to be superseded by the replica of the France II, currently being built in Split, Croatia. To be handed over in late 2017, this vessel that will cost around 100 million euro will be embellished by over 6,350 sq. m. of sails.
“The cruise industry is exploding”
For every cruise, whether in the Mediterranean or the Caribbean, Star Clippers undertakes to provide “very high level service and romantic luxury, far removed from the anonymity of large cruise liners,” the chairman emphasises. And competitively priced compared to standard cruises: a week in a regular cabin starts at 1,500 euro. “The luxury cruise niche works very well. Globally, the entire cruise industry has been exploding for 30 years. Even the 14th July attacks did not affect the sector,” says the Swede. The industry figures speak for themselves. Unofficial estimates cite 34 million cruise passengers worldwide in 2026, compared with 13 million in 2004 and over 24 million forecast for this year. The growth potential is judged to be considerable, as cruising accounts for only 2% of the overall tourism and travel industry market today. So it is logical that by 2024, 56 ships will be built for a total investment of almost 40 billion dollars and a capacity of 165,000 berths, according to the Cruise Lines International Association (CLIA).
For his part, Mikael Krafft is confident. With his new boat he should increase the number of passengers by 50% (20,000 to 30,000) in 2018. “And from next year we plan to hire staff,” adds Mikael Krafft, crowned Manager of the Year by MEB and Nice-Matin. With 40 employees in Monaco and 500 on its ships, Star Clippers manages its 3 or 4 mast cruises worldwide, like its 500 crew members.
Boutsen Aviation : No visibility for 2017
NICHE/From Monaco, Boutsen Aviation has become one of the market leaders in European business aviation. According to its founder, Thierry Boutsen, the US presidency could have a positive impact on the sector.
Thierry Boutsen was still a driver when he founded his business aircraft and helicopter company in 1997. “I hadn’t thought about this conversion at all. I thought I’d finally go and visit those places around the world that I wasn’t able to enjoy when I was racing in F1 or endurance…” Passionate about machinery after working on private jets as a mechanic when he was 18, Boutsen bought his first plane in 1988. On his own behalf he then began to buy and sell different models. Then came the snowball effect. In 1997, the F1 vice-world champion Heinz-Harald Frentzen asked him how he could find the same model. Boutsen handled the deal. “I gave him the keys two months later.” The Belgian, a Monaco resident, then created Boutsen Aviation with his wife Daniela, to serve in turn Keke Rosberg, Mika Häkkinen then Michael Schumacher.
A clientele of heads of state and listed companies
After being in the world of cars, Thierry Boutsen turned to business aviation. He hired his first employees in late 2000. “The business has gradually grown. There are 9 of us now and we’ve sold 329 planes and helicopters in 50 different countries,” explains the former F1 champion who “manages (his) team like a F1 team”. “Our company operates like an estate agency. We are brokers, that is to say we buy and sell new or used business aircraft. We conduct the negotiations of course, but we also take care of the technical side, the expert assessment, and we resolve the legal and administrative problems,” adds the former Benetton and Williams driver. Some jets are even made to measure, with rooms and bathrooms. The customer profile? Large listed companies, businessmen who need to move quickly, heads of state, and charter companies. In 2001, Prince Rainier entrusted him with the sale of a Falcon, and Prince Albert is one of his biggest customers.
2016 with ups and downs
Word-of-mouth is key in this sector. The market follows the economic and political situation too. “We finished 2015 at full throttle. 2016 has been a year of ups and downs. After a very calm first quarter we had a lot of business until August, then – most likely due to the US elections – people were on the defensive. But it’s taking off again now,” the businessman analyses. So, in an international environment full of uncertainty – with the war in Syria and the cold war between the US and Russia – it is difficult to have visibility for 2017. “When I started in 2000, we had 2 to 3 year cycles. Now, they last 2 to 3 months!” Thierry Boutsen remains optimistic, however. “The new US presidency will play a positive role in our field. Donald Trump has his own fleet and is familiar with the benefit that using a private plane gives companies.” In France, a right-wing victory in the presidential elections could also boost fresh impetus. “5 or 6 years ago, there were 650 business aircraft in France. Now only half are left. Whereas in Germany the figure has increased.” That growth is related to a cultural difference in perceptions: “In Germany, owning a plane is proof of success. While in France, you’re branded a dirty rich man. Businessmen were afraid to use a private jet for image reasons.” Not to mention the fears connected with a potential tax audit…
Despite the crisis-related turbulence, Boutsen Aviation has most definitely taken off in a niche sector. The company is now the European market leader. While the company turnover remains confidential, the sales amount is staggering. “Deals run at 10 to 30 million dollars. The most expensive aircraft was sold for 105 million dollars and the cheapest for 500,000 dollars,” says Thierry Boutsen.
