Quarterly update of Coface country risk assessments

Tension increases at the beginning of the year

The world economy is becoming "Japanese": global growth remains weak, despite ultra-expansionary monetary policies.

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An international scenario with uncertain results

 

Although emerging economies recorded a slight recovery earlier this year (Coface forecasts growth of 3,9% in 2016, after 3,4% in 2015 and 7,2% in 2010), the slowdown in advanced countries (1,7% in 2016) is altering the balance of the Global economy more than ever. Growth this year is unlikely to exceed 2,7%.

 

En United StatesDespite its generally healthy economy, there are vulnerabilities. Meanwhile he service sector is evolving satisfactorily, driven by the high employment rate and household consumption, the industry is harmed by the strength of the dollar. United Kingdom faces the uncertainties related to his future in the European Union, which is increasing the volatility of financial markets and negatively affects trust indices. The the euro area It is driven by domestic demand, labor market developments and favorable credit conditions. In Greece, Portugal, Spain and Ireland, business confidence is low, hindering growth (1,6% in 2016), mainly in line with the increase in political risks.

 

Numerous threats have influenced the arguments supporting Coface's forecasts: currently, the world economy shares the economic characteristics of Japan, with low growth despite ultra-expansive monetary policies, volatile financial markets and zero inflationary pressure.

 

The Japanese economy is also affected by low levels of consumption. The appreciation of yen earlier this year and the ineffectiveness of the initiatives abenomics have forced the Bank of Japan to adopt negative interest rates. After placing the country under negative surveillance in January 2016, Coface has revised Japan's assessment to A2.

 

Numerous sources of risk: tensions and uncertainties

 

Chinese slowdown and low oil prices

 

Although the Central Bank of China has reduced mandatory bank reserves in order to sustain 6,5% growth, as planned Coface In 2016, the risk of a more pronounced slowdown persists. At the same time, the fall in oil prices has created budgetary difficulties for exporting countries – their deficits are widening more rapidly and activity in the hydrocarbon sector is being hampered by negative externalities. These factors explain the numerous downward revisions and negative outlooks.

 

 

 

Three aggravated risks: the Chinese slowdown, low oil prices and increasing political uncertainties

 

 

 

(New evaluation A3) is being hurt by low commodity prices as well as the scandal over the 1MBD sovereign wealth fund. Investor confidence is affected, in a context of high household debt and low external demand. Added to this are the country's growing political risks.

 

El Sultanate of Oman (new evaluation A4) remains one of the economies most vulnerable to low oil prices. Its short-term production capacity remains limited, while oil revenues (almost 85% of public revenues) fell by 36,3% in 2015.

 

Exports of Kazajstán (new evaluation C) to China have slowed, while the country has been affected by the Russian recession and low oil prices.

 

Saudi Arabia (A4, now under negative surveillance) has seen its public deficit grow. Prices remain low and confidence indices begin to deteriorate.

 

The least affected to date, Kuwait (A2, now under negative surveillance) runs the risk of experiencing a deterioration in its public and external accounts in 2016.

 

Increased political risk

 

Increased political instability could have a serious impact on economies already affected by the global slowdown. In fact, it is the logical consequence of the deterioration of economic conditions that generates citizen discontent and weakens national unity.

 

Has joined the category D, which includes countries whose companies face a very high probability of default. The country is affected by Russia's recession (the number of Armenian workers in Russia decreased by 5% in 2015). But it also suffers from the population's growing frustration with corruption and poor economic growth, which contributes to the deterioration of its political and social situation.