Coface Country Risk Update
China Downgraded. Czech Republic, Portugal and Vietnam Upgraded. Oil-Dependent Economies, Including Canada, among the Countries Placed on Negative Watch.
Global credit insurer Coface, in its quarterly country risk Panorama, has lowered the growth forecast of emerging countries to 4% for 2015, compared to 4.2% in March 2015. The outlook for developed economies has improved to a 2% growth forecast for 2015 and 2016, up from 1.5%.
Economic Recovery Continuing in Europe and Asia
The Czech Republic, Portugal and Vietnam were all placed under positive watch in January 2015. They are continuing on the right track, with their economies driven by consumer spending.
- The Czech Republic has benefitted from the economic recovery in Western Europe (particularly the European automotive market) and has been upgraded to A3.
- Reassured by satisfactory payment experience, Coface has upgraded Portugal to A4 and confirms the continued positive corporate momentum, especially among export companies.
- Vietnam, upgraded to B, has seen an acceleration in private consumption due to low inflation and improved consumer confidence. External risk has been reduced, the current account is in surplus and exchange reserves are improving.
Canada, Algeria and Gabon Are Suffering from the Effects of Lower Oil Prices
Hydrocarbon-exporting countries are suffering from the consequences of their dependency on the oil sector:
- Canada's A1 country assessment has been placed under negative watch, due to the impact of the decline in oil prices on investment, the risks weighing on the property sector and the negative growth during Q1 2015.
- Algeria's A4 assessment has also been placed on negative watch. The decline in oil prices has had a negative impact on public accounts and the country's current account. If prices do not pick up, activity in the country will remain sluggish.
- Gabon's B assessment has been placed on negative watch. The country's high dependence on oil should result in a slowdown of economic activity to 4% in 2015 (compared to an average of 5.4% in recent years).
- Tanzania is suffering from the rapid decline in its exchange rate against the US dollar. The shilling's depreciation is causing concern and companies could suffer considerably. The country's growth is slowing while public deficit is deepening. Coface has placed its B assessment on negative watch.
- Finally, the economy in Madagascar is suffering from continued political instability. Its C assessment has also been placed under negative watch.
The Level of Corporate Debt in the Chinese Economy Is a Cause for Concern
Placed on negative watch in January 2015,China’s assessment has been downgraded to A4. The country's level of private debt has increased to 207% of GDP in 2014, compared to 130% in 2008, according to the IMF. This level is considered worrying and is far higher than the levels noted in other emerging countries. As such, the solvency of companies in fragile sectors could be affected. The cement, chemicals and steel segments associated with infrastructure spending are weakened by their overcapacity.