Coface Sees The End Of The Global Credit Crisis And Eases The Outlooks For Its Country Ratings

Jan. 22, 2010 - PRLog -- Coface sees the end of the global credit crisis and eases the outlooks for its country ratings, but continues to pay attention to the threat of bubbles

Warning: the Coface country rating does not concern sovereign debt, but rather indicates the average level of risk presented by a country’s companies on their commercial transactions. This average trend is not a guide to each company’s rating, which is determined by its own characteristics. It is therefore essential that the partners of a company located in one of the cited countries check the company’s specific Coface rating.
   

During its 14th Country Risk Conference, Coface announces some 20 upgrades in country ratings. The credit crisis, which will have lasted two years - as predicted at the conference held in January 2008 - has been of an unprecedented magnitude in the past 60 years. Since the second half of 2009, Coface has recorded a net reduction in payment defaults. Payment defaults, still up 19% in the 1st half of 2009, declined 40% in the 2nd half. Nevertheless, for 2010 Coface foresees a very soft recovery in developed countries, which is fragile due to the threat of various bubbles.


End of the first “globalisation crisis”

This credit crisis has lasted two years, like the previous crises, and as Coface predicted at the beginning of 2008 when it recorded the initial increase in companies’ payment defaults. But it has been the most violent credit crisis in the past 60 years: the world growth differential between the beginning and end of the crisis was 6.1 points, with strong geographic disparities, as Eastern Europe and Russia were affected the most (10.2 and 16.2 points respectively). Compared to previous crises, the magnitude of the shock is explained by the increasing globalisation of economies: a confidence shock spread everywhere following Lehman Brothers’ bankruptcy, with the fallout reaching both finance and industry, Europe and Asia. Even in countries not characterised by debt bubbles the record contraction in world trade had a brutal impact on companies.

Nevertheless, the decrease in payment defaults clearly indicates that the credit crisis as such is over. This correlates with the end of the recession in most major industrialised countries at the end of the third quarter 2009. Therefore, after having implemented several waves of rating downgrades throughout the crisis, Coface is easing the rating outlooks for all industrialised countries. Exceptions include the United Kingdom, Italy and the “PIGS” (Portugal, Ireland, Greece and Spain), which remain rated A3, some still under a negative watch.

The dynamism of emerging countries rebalances world growth. The decoupling of emerging countries / developed countries has finally occurred, but in a specific and new way. As stakeholders in the world economy, emerging countries couldn’t escape being affected: where companies were too heavily indebted, the growth contraction brought on credit crises (i.e significant increases in payment defaults). But in most cases, the emerging countries managed this crisis independently. Therefore they demonstrated their ability to learn the lessons from previous crises and to rely on solid fundamentals, which allowed them to implement recovery policies.


Yes to recovery, but look out for bubbles

Although the end of the credit crisis is apparent, the 2010 recovery in industrialised countries is of high risk because of threatening bubbles:

 The bubble in public debt is especially dangerous: it is not so much the risk of sovereign defaults that is feared, but rather the need to quickly implement budget restriction policies that are detrimental to growth and therefore to companies.

 The overcapacities in China have to be monitored: after strong credit growth that supported Chinese companies, the authorities have decided to restrict the credit supply in overcapacity sectors: this “go and stop” policy, typical of China, could destabilise fragile companies.

 The asset price bubble (stock markets) can also affect the economy. Sharp stock market volatility can be expected in industrialised countries due to the financial markets optimism, which is out of sync with the real economy’s recovery.

The bursting of these bubbles is likely to generate new negative shocks for companies (“W” shaped recovery scenario). A relapse would affect companies, many of which are now quite weakened after two years of under-activity. Nevertheless, Coface leans towards a softer “L-shaped” recovery scenario and therefore with no reversal in economic activity. For 2010, we foresee world growth of 2.7%, comprised of 1.4% in industrialised countries and 5.3% in emerging countries.

“The 5th credit crisis recorded by Coface was distinguished by the magnitude of the shock but not by its duration, since like all previous crises it ended after two years. The end of the crisis, marked by the decline in payment defaults, does not signal the elimination of all risks. Indeed, bubbles- the source of all of observed crises - reform at incredible speed,” explains François David, Coface Chairman, “but the economy is in an upturn phase and we, Coface, are already working with our customers on the recovery, especially in Asia where it is well under way.”


Save the Date! Coface UK & Ireland's Country Risk Conference is taking place on Wednesday 9th June 2010 in Manchester.

For information about Coface and press enquiries, please contact:
Trevor Byrne, Tel: +44 (0)1923 478393;
Email: trevor_byrne@cofaceuk.com
Website: http://www.cofaceuk.com



About Coface
Coface's mission is to facilitate global business-to-business trade by offering its 130,000 customers four business lines to fully or partly outsource trade relationship management and to finance and protect their receivables: credit insurance, factoring, ratings and business information and receivables management. Thanks to the worldwide local service delivered by 7,000 staff in 67 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface. Coface is a subsidiary of Natixis whose share capital (Tier 1) was 13.4 billion euros at the end of June 2009.
www.coface.com


In the UK and Republic of Ireland Coface has been a leading provider of credit management services since 1993, it’s objective being to enable businesses to trade securely at home and overseas. Operating from offices in London, Dublin, Watford, Birmingham, Leeds and Cardiff allows Coface to provide a local service. The company’s credit insurance offer integrates credit assessment, collection services and cover for unpaid debts. Multinational businesses can protect their worldwide subsidiaries through Coface’s international network. Coface provides working capital and off balance sheet facilities to complement its product line. The company also provides access to domestic and international business information and a collection network at home and overseas. Coface is also a recognised operator in the London political risk market and a provider of surety bonds and guarantees.
www.cofaceuk.com and www.coface.ie

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