The country risk rating of Argentina, Brazil and Egypt improves

Report

SOLUNION has announced the new country risk ratings for the first quarter of 2017, according to the rating prepared by its shareholder Euler Hermes.

---

SOLUNION, the expert credit insurance company, has announced the new ratings risk country of the first quarter of 2017, according to the rating prepared by its shareholder Euler Hermes. The company monitors the macroeconomic situation, the business environment and the political stability of almost 250 countries, to help its clients anticipate risks during the development of their commercial activity.

 

In the first quarter of the year, three countries improve their rating: Argentina, Brazil and Egypt.

 

The sky is clearing (finally) for Argentina

 

The first measures of Macri plan (removal of capital controls, budget cuts and monetary adjustments) initiated last year to rebalance the Argentine economy, weighed on the results of 2016. GDP contracted -2,3% during the year, inflation approached 40%, and the current account deficit increased to +2,6% of GDP. But growth has returned. The GDP of Argentina grew by +0,5% between Q3 and Q4 of 2016, driven by the good results of exports in that period (+3,2%). At the end of 2016 a positive period began for the country and the prospects for 2017 are good.

 

Argentina is in a financial situation much more comfortable due to renewed access to international capital markets. Furthermore, the lifting of the export quotas of soybeans allowed a rebound in Argentine exports. The removal of price subsidies is also having a positive effect. The inflation linked to this measure has ended and the new price freedom guarantees a better balance between supply and demand, and curbs excess consumption and investment. In general, a slowdown in inflation is expected in 2017, which would fall by approximately 20%. The Argentine economy is estimated to grow by 3,2% this year, driven mainly by investment, which is expected to increase by 8,3% (-5,2% in 2016).

 

These factors support the improvement that Euler Hermes to Argentina's country risk rating, from C4 to C3, improving its forecast from “high” to “significant” for the next 12 months.

 

Brazil regains its balance

 

It has also improved the rating for Brazil, which goes from C3 to B3. In recent years, its economy has faced several challenges, although with certain adjustments it has been able to rebalance its economy and increase its chances of exiting the recession.

 

Thus, the inflation for 2017 it is forecast at 5,1% (2015: 10,7%). The reduction of inflation in the country allowed the Brazilian Central Bank reduce, for the first time in four years, its key interest rate by 200 basis points, to 12,25%.

 

The report details that family consumption will increase by 0,9% in 2017 (-5% in 2016) and that investment will grow by 1,9% (-11% in 2016). Therefore, the Brazilian economy should improve, with expected growth of +0,6% in 2017.

 

The current account deficit in the country has also reduced to 1,1% of GDP in 2016 (2015: 3,3%), due to a slight rise in raw material prices. The adjustments have been noticeable in the growth of the Brazilian economy, which has experienced a GDP contraction of 3,5% in 2016.

 

La Brazil inflation has easily recovered within usual ranges. He Brazilian Central Bank can take advantage of this new panorama to further stimulate the national economy, bringing some relief to consumers and companies.

 

This encouraging future has led to its country risk rating being improved from C to B, with a “significant” forecast for the next 12 months.

 

Egypt juggles

 

In November 2016, the Egyptian government carried out several reforms. Firstly, it ended the EGP/USD peg. Next, there was a devaluation of the Egyptian pound, thus disappearing the parallel currency market. On the other hand, the Government considerably reduced public subsidies.

 

La devaluation of currency will increase the cost of imports. This situation will probably force Egypt to import less, which in turn would reduce the current account deficit to -3,5% in 2017 (2016: 5,8%). Cutting public subsidies should help curb Egypt's huge fiscal deficit, from -12% in 2016 to -9% in 2017.

 

On the other hand, the Egyptian economy will not grow in 2017. The volatility of the local currency will probably drive inflation, 26% in 2017 (2016: 13%). However, doubts about the viability of the Egyptian model have practically disappeared. Foreign exchange reserves have increased from three months in September 2016 to seven months of imports in February 2017.

 

The economic recovery is expected to arrive in 2018, with growth of +1,5%, and will be more balanced than in the past. Therefore, the country risk rating of Egypt It went from D4 to D3 and from "high" to "significant" for the next 12 months.