Coface Warns Against Increased Country Risk

After upgrading many of its country ratings in 2010, Coface is now downgrading 10 country ratings, including those for Japan and several countries in the Middle East/North Africa region.


Coface has revised downwards its world growth forecast for 2011 from 3.4% to 3.2%, notably as a result of recent events in Japan, North Africa and the Middle East. Despite this downturn, the economic environment remains buoyant.


Economic Shockwaves in Japan


Due to the recent spate of disasters in Japan, Coface has put the country's A1 rating on negative watch. Japan's 2011 growth forecast has been revised downwards from 1.5% to 0.3%, after a 3.9% rebound in 2010.


The economic shockwaves will initially hit exports - traditionally the driving force of Japanese growth. Disruptions to power supplies will have a long-lasting impact on output in the prefectures directly affected, as well as in more industrialised areas. Small subcontracting firms with minimal cash flow will be particularly affected.
Although, at this stage, it is difficult to assess the impact of these events on the global economy, Coface already predicts repercussions for the global production chain, in which Japan is a key player, especially in the automotive and electronics industries.


ccording to Coface's main scenario, the rebound should occur in the third quarter, at the very earliest, and will be driven by reconstruction efforts and renewed consumer confidence.


Impact of Rising of Oil Prices


Coface expects oil prices to flare up significantly, driven by socio-political tensions in oil-exporting countries and reconstruction efforts in Japan, the world's third-largest oil importer. In 2011, Coface expects Brent oil prices to rise by 25% compared with 2010 at $100 per barrel. This will knock 0.1 to 0.2 points off GDP growth in the major oil-importing countries: USA (2.5% growth in 2011), Germany (2.3%), UK (1%) and South Korea (3.5%).


In this view, Coface has revised down its world growth forecast from 3.4% to 3.2% (1.7% for the advanced countries and 5.6% for the emerging countries), compared with 4.2% in 2010. These forecasts also factor in the impact of the euro zone’s sovereign debt protracted crisis and the expected slowdown in emerging economies, especially Asian countries, which have introduced measures to curb economic overheating.




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