Coface Sector Review: Credit Risk Stabilizes in Europe and North America but Concerns Linger in Asia
In its most recent Panorama economic publication, global credit insurer Coface reviews 14 key sectors in North America, Emerging Asia andEurope. The Panorama also takes a detailed look at the electronics industry inAsia.
Sector Risk Review
- North America: The region forges ahead, posting continued improvements in corporate financial solidity.
The majority of sectors are considered "medium risk" and the short-term outlook is favorable in several sectors. These include the engineering sector, which is attracting increasing investments and strengthening its profitability (average rate of 17.5% at the end of 2013) and the automotive sector which benefits from sound financial foundations. Credit risk in the textiles and clothing sector is also stable, with 6,000 jobs to be created and more than 4 billion dollars of investment planned in 2014.
- Europe: While the recession appears to be coming to an end in Western Europe, it has not yet produced a significant improvement in sector risk. In the first quarter of 2014, the level of credit risk remains particularly high in the metal, automotive and construction sectors. The metal industry, in which sales and profitability are in steady decline, is highly dependent on the construction and automotive sectors. Coface remains cautious about the European automotive sector despite the positive trend of six consecutive months of rising sales. These two sectors remain in Coface’s “very high risk” category.
Construction, currently considered "high risk," has seen a fall in activity (down 10% in January 2014 compared with January 2013) and prices are generally in decline. Except for the slight recovery inGermany andDenmark, the sector has been severely impacted by the reduction in the number of building permits in Southern Europe,France and even theUK.
- Asia: Unlike Western Europe and North America, where risk is tending to stabilize, emergingAsiapresents a fresh source of concern. The slowdown of activity inChinahighlights structural difficulties that are affecting company profitability. Sectors suffering from overcapacity now face a restructuring challenge. This is the case in the metal industry where the company clean-up process is accompanied by an increase in risk. According to Coface’s survey inChina(a country that produces 49% of the world’s steel), 80% of companies suffered from payment overdues in 2013, the highest level in the last three years. In this context, the metal industry in emergingAsiais currently the only sector being downgraded by Coface to "very high risk,” the highest risk level.