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Sunday 24.06.2018 | Name days: Jānis

Expert: global economic growth rates to slow down this year

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU, Maris Lukins

Coface Latvia Head Maris Lukins

A moderate global economic slowdown is expected this year,  forecasts credit risk insurers at the 15th Coface Country Risk Conference in Paris.

Risks requiring particular attention include the difficult situation with sovereign debts in the eurozone and growth financing in the emerging countries. Coface points out a new tendency – converging between the advanced and the emerging countries’ risks, because the ratings of the emerging countries survived the crisis have increased, the business news portal BNN was informed by Coface Latvia spokeswoman Sandra Smiltniece.

According to Coface forecasts, the global economic growth rate in 2011 will drop to 3.4%, compared to 4% decline in 2010. It will be affected by the private-sector debt reduction, restrictive budget policy implementation in Europe, the possible raw material price gains and the anticipated global trade volume decrease. Growth in the adavnced countries will account for 1.8%, compared to 2.3% in 2010, while it will fall from 1.7% in 2010 to 1.4% in the eurozone. This small drop will have a negative (a minimal, though) impact on companies average credit risk, as the growth gap between 2010 and 2011 comprises only 0.6% of GDP.

The emerging countries have benefited from the crisis the most and they will keep developing also in 2011; however, at a slightly slower pace than before – 6.2%, compared to 6.7% in 2010. In contrast to the eurozone private debt bubble resulting in sovereign crisis, it does not hinder the emerging countries activity. However, they are not fully protected against growing private sector debts.

On the basis of the countries risk assessment experience, Coface has recorded positive trends in their rating changes last year, which marked an alignment between the advanced and emerging countries’ risks linked to the emerging countries’ results stability and business payment sustainability during the downfall. The emerging countries show high and stable performance and a strong financial basis, while the advanced countries’ ratings have dropped.

Although in 2009 Coface raised ratings, setting a positive watch for 23 countries, it lowered or determined it negative for 47 countries. Last year the rating was raised or regarded positive for 47, but only six countries’ rating was downgraded or placed under negative watch.

The credit rating increase was an important step for Estonia on the international level, but overall only 9 out of 28 advanced countries have returned to the pre-crisis level, the Head of Coface Latvia Māris Lukins says.

Starting from this year, the international credit risk insurers Coface have began to rate already 156 countries (previously 130), of which 28 are the so-called advanced countries. In determining the credit rating a country’s average business transaction risk is taken into account instead of the sovereign debt. The average indicator does not reflect each company’s rating; therefore, it is essential that the particular country’s business partners verify the specific company’s rating and payment history, M. Lukin emphasizes.

Before the crisis, the lowest rating among the advanced countries was A2, but nine emerging countries had at least A2 rating. In 2010, the lowest rating of advanced countries was A4, and already for 27 emerging countries, including China, Turkey, Brazil, India and Poland, the rating was at least equal to A4, outpacing Greece, Ireland and Portugal, who are now struggling with the private and public sector debt. Turkey is now only one notch below the United Kingdom, while Poland has a better rating than Iceland.

Traditionally, the concept of country’s risk has been attributed to emerging countries with major risk related to debt in foreign currencies. However, the eurozone has shown it is possible to experience a downfall with a very high external debt in local currencies. This working framework is losing its efficiency, indicated Coface Chairman François David, adding that these changes confirm our chosen methods: Coface has never made a distinction in terms of nature between the emerging countries and the advanced ones.

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