Coface Country Risk Update: Belgium and Netherlands Upgraded, Brazil on Negative Watch, Business Environment in Russia Downgraded
Improvements in country risk are increasingly apparent in advanced countries, where growth is expected to rise 2.1% in 2015 according to a new country risk Panorama by global credit insurer Coface. The Eurozone records two positive changes with upgrades for the Netherlands and Belgium. The outlook varies widely for emerging countries, however, as Coface revises its growth forecast downward to 4.2%. Brazil and Ecuador have been placed under negative watch while the business environment assessment for Russia has been downgraded.
Belgium and the Netherlands upgraded to A2, confirming the recovery in the Eurozone
The upward revision in the ratings ofBelgiumandtheNetherlandsto A2 follows that of Germany, Spain, the United Kingdom and Austria in 2014 and Portugal in early 2015. This action confirms the gradual return to growth in the Eurozone, which is forecasted by Coface at +1.3% in 2015, after +0.9% in 2014.
Household spending, exports and investments have made a positive contribution to growth in both countries. Corporate insolvencies continue to fall. In Belgium, the political landscape has become more stable, with a government focused on fiscal consolidation. In the Netherlands, the start of the year was marked by increased confidence among companies in the construction sector, in line with the rise in real estate prices (+3.6% in January 2015 compared with their low point in 2013).
Latin America slumps
Emerging countries are displaying contradictory trends. The front-runners in terms of good news areTunisia, whose B assessment is now placed on positive watch, andCambodia, which has been upgraded to C.
- In Tunisia, the business climate has been improved by the end of the political transition, which is unlikely to be jeopardized by the threat of terrorist attacks. Tunisia's growth is set to pick up in 2015 (+3%) rising half a point compared with 2014, supported by expansion in agricultural production and a strengthening in economic activity in the industrial sector. The country will also benefit significantly from the improvement in the international economic environment, including low oil prices and the recovery in Europe, its main export destination. Tourism is likely to suffer from the short-term security risk.
- Cambodia continues on the road to growth. Economic activity is robust, with GDP growth of more than 7% since 2011, supported by the tourism sector and the strength of its textile exports and access to the European Union, the United States and Canada. Foreign direct investments continue to increase due to Chinese and Vietnamese plant relocations in the country, as well as public-private partnerships established in the context of energy infrastructure projects.
Latin America has been severely affected by economic and political uncertainty, including the fall in commodities and the decline in Chinese demand. Venezuela and Argentina, sorely tested in 2014 by major external liquidity risks, are not the only ones affected.Brazil'sA4 assessment andEcuador’sB assessment are now under negative watch.
- In Brazil, prospects of a recovery in 2015 appear unlikely (growth forecast at -0.5%), due to the decline in spending and investment. Industry is set to continue to suffer from the lack of infrastructure and qualified labor, with a high risk of water shortages and possible electricity rationing. The automotive industry will suffer from the economic slowdown in Argentina, its principal market, while the construction sector and offshore petroleum activity are also likely to be impacted by the decrease in investments, following the corruption scandal surrounding Petrobras.
- Ecuador is the country in the region most affected by the falling oil price after Venezuela. Its budget deficit is widening and growth has slowed considerably (to 1.5% in 2015, compared with 3.8% in 2014). The country needs an oil price of US$120/barrel to maintain its fiscal stability. The dollarization of the economy makes it difficult to devalue to adjust the public accounts. Non-petroleum exports are also less competitive, particularly to Europe.
Russian business environment more fragile than ever
Following the downgrade of its country assessment to C in October 2014, Russia has again been downgraded, this time in respect to its business climate. The business environment, now at a C assessment, is poor and suffers from particularly blatant failings in terms of protection of property rights. Weak governance and corporate transparency also contributed to this downgrade, as did the sanctions put in place in 2014 which complicate business activity in some sectors. It is worth noting that Russia is ranked 176th (out of 215), according to the World Bank's governance indicator for control of corruption, which remains a recurrent weak point.